Trina Solar Limited (ADR) Earnings: Is Growth Back for Good?

On Wednesday, Trina Solar (NYSE: TSL) will release its quarterly report, and investors are facing a crisis of confidence in the stock right now. Although Trina's fundamentals have bounced back convincingly as a result of renewed optimism in the Chinese solar market, the stock has followed the same downward trend as Yingli Green Energy (NYSE: YGE) and JinkoSolar (JKS -1.80%) over the past few months, raising concerns about whether the solar-stock boom in the second half of 2013 had gotten ahead of itself.

Trina Solar is just one of many China-based solar stocks fighting for supremacy in the highly competitive solar area, and the company has done a better job than many of its peers in keeping its gross margins up and fighting to become profitable. Yet if conditions for the solar energy market deteriorate, some shareholders fear that Trina and its peers could just as easy fall back into their former loss-making ways. Let's take an early look at what's been happening with Trina Solar over the past quarter and what we're likely to see in its report.

Source: Trina Solar.

Stats on Trina Solar

Source: Yahoo! Finance.

What's next for Trina earnings?
Investors have gotten more optimistic about Trina Solar earnings in recent months, reversing earlier calls for a first-quarter loss and raising their full-year projections by more than 60%. The stock, though, has lost a lot of ground, falling around 30% just since mid-February.

Trina Solar's fourth-quarter report sent the stock higher, even though the numbers themselves weren't all positive. Trina reported that it shipped 770 megawatts of solar modules, which was less than in the previous quarter, and revenue fell 4% compared to the third quarter of 2013. Trina's gross margins also fell slightly, although at more than 15%, the company still compares favorably to many Chinese solar companies that have struggled to get any positive gross margin.

Source: Trina Solar.

But conditions in the Chinese solar market look like they're facing new problems. Last month, both Trina Solar and Yingli Green Energy warned that they expected lower module shipments than they'd previously anticipated. In particular, Trina said that its shipments would be about 130 megawatts lower than previous guidance, coming in at just 540 to 570 megawatts, blaming delays in setting new minimum import prices to the European Union. So far, though, it appears that both Trina Solar and Yingli Green Energy believe the problem will only result in delays rather than outright lost sales, as they've kept their module-volume guidance for the full year unchanged. Moreover, margins have improved dramatically, suggesting even greater potential for profits from the solar industry.

To compete effectively, Trina Solar has worked hard on the efficiency front. Last month, Trina announced its new high-efficiency Honey Ultra solar module. The module boasts efficiency of 24.4%, continuing the upward trend in the key metric and giving it a key competitive advantage even as Yingli and JinkoSolar both look to come out with efficiency-increasing innovations of their own.

Still, a lot depends on China's demand for solar energy. Trina, Yingli, and JinkoSolar all fell when analysts lowered their estimates on how much solar capacity China would add, showing just how important it is for them to get support from their home market. Meanwhile, Trina relies extensively on European sales, and continuing struggles in the European economy raise questions about whether solar demand will stay strong on the Continent.

In the Trina Solar earnings report, watch to see how the company guides future sales and where the company's best results are coming from. With so much competition, Trina needs to use everything at its disposal to sustain its upward momentum as long as possible.

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