At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best...
A few days ago, as I was skimming over postings on the Motley Fool Discussion Boards, I came upon an intriguing post from one of our Fool members. Paraphrased, it went a little something like this:
"So I was looking at Trina Solar's
It got me to wondering: Is it time? Checking out a few of the most popular solar names, it became clear that something really is going on here. Trina shares, for example, have gained 20% in price over the last 10 days -- but it's not just Trina. Shares of Suntech Power
To every rule there is an exception
But not everyone's partying like its 1999. One notable laggard in the middle of this solar rally is First Solar
Why did Argus downgrade? Good question. Unfortunately, none of the major media outlets seems to have details on Argus' move -- but I think we can take a guess. Massively unprofitable, First Solar has lost more than $605 million in the past year. The company's defenders will point out that much of this loss was "non-cash," and caused by a charge taken for goodwill impairment last year. But the truth is that First Solar has been struggling for much longer than that.
Indeed, over the past year, First Solar reported negative free cash flow of $693 million -- an amount even larger than the reported GAAP loss. It's run full-year free-cash-flow negative in two of the past five years, burned through a cumulative $287 million over the same period, and admitted to generating worse free cash flow than reported net profits in every single year of the past five.
So downgrade it to neutral? Maybe Argus would have been better off just admitting it was wrong to recommend First Solar in the first place, and downgrading to sell.
Cash is king (and cash-poor is for paupers)
While First Solar looks just terrible, though, the truth is that I just can't get behind the rally for any of these solar stocks. The numbers just don't back it up. They don't justify solar investors' optimism.
Like First Solar, each and every one of these companies is burning cash like mad. The "best" of the bunch, SunPower, burned through $206 million in negative free cash flow over the past year. Suntech is running free-cash-flow negative to the tune of $274 million. Trina, negative $339 million. And Yingli is worst of all -- $713 million consumed by the flames.
As for the balance sheets... have you ever seen a suburban sidewalk on a hot summer day right after a rainstorm? It's covered with little worms who've crawled out of the dirt to avoid the flood, only to turn into little strips of crispy critter carcass burnt under the noonday sun. And that's just how the solar companies' balance sheets look today: First Solar's net debt approaches $200 million. Trina's worse at $223 million net debt -- and it gets exponentially worse from there. SunPower's $382 million in hock. Yingli, $1.6 billion. Suntech, $2 billion.
So to return to our curious investor's question: Yes, solar power stocks have rallied strongly in recent weeks -- but no, this does not mean you should buy them. To the contrary, once you get a good look at the numbers, there's only one conclusion to draw: Sell them. Sell them all.
Strong words, you think? Perhaps, but I'm sticking with them, and I'm putting my reputation where my mouth is, too. After examining the numbers, I decided each and every one of these stocks deserved a strong sell rating in my CAPS portfolio, and I've marked them accordingly.
Fool contributor Rich Smith does not own shares of, nor is he short, any company mentioned above. He does, however, have public recommendations available on more than 60 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle "TMFDitty" -- and is currently ranked No. 348 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.
Motley Fool newsletter services have recommended buying shares of First Solar. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.