Currently trading almost 40% off its 52-week high of $18.77, shares of Trina Solar (NYSE:TSL), a leading Chinese PV manufacturer, have taken a beating; however, the stock is still up almost 80% over the past year, and it has outperformed the Guggenheim Solar ETF (NYSEMKT:TAN) by more than 7% as of this writing.
Trina recently inked a deal -- its largest of 2014 -- with Chinese energy firm, Zonergy, in which Trina will provide PV modules for several of Zonergy's downstream projects. Is this deal enough to get Trina back on track, or is it just noise, distracting investors from the fact that the sun is no longer shining fondly on the Chinese solar company? Let's take a look.
What's the big deal?
Trina will be supplying Zonergy with nearly 800,000 PV modules for Zonergy's projects in provinces such as: Jiangsu, Shandong, Xinjiang, Qinghai and Sichuan. Trina expects delivery of its largest single module supply agreement of the year to be completed by December 2014.
More importantly, the deal may usher in the dawn of a new era of partnership between the two businesses. In reference to the deal, Wuhua Zhang, Deputy President of Zonergy, said, "We have a large pipeline planned in China for this and next year. We look forward to building a long-term, strategic partnership with Trina Solar and to realizing Zonergy's success in downstream solar project development." A successful partnership between the two companies could help Trina mitigate the challenges it faces with the increased tariffs on its exports to the U.S. But, time will tell if this actually comes to pass.
What to do now?
As exciting as it is that Trina penned its biggest deal of the year, I don't think this makes Trina any more of an opportune investment. Granted, the company is profitable, and not all Chinese PV manufacturers can brag about that, but there are serious concerns that preclude me from picking up shares. For one, the company missed big on meeting its guidance for Q1 2014 module shipments.
At the end of 2013, management guided for Q1 shipments to fall between 670 MW and 700 MW, but the company's actual shipments for the quarter totaled 558 MW. Okay, so meeting guidance is not the most essential element in evaluating a company's worth as an investment, but, in this case, I think it is a little more relevant since U.S. companies may be shying away from importing Chinese PV modules. I'll be interested to see, when the company reports Q2 earnings, whether it meets the module shipment guidance of 950 MW to 1,010 MW, that the company identified at the end of the first quarter.
Interestingly enough, despite the lower module shipments in the first quarter, management did not lower the previously issued guidance for module shipments in 2014 -- 3.6 GW to 3.8 GW.
The Foolish final take
Kudos to Trina for announcing its largest deal of the year; however, there's much more to Trina Solar than just one deal. There's also much more to the company than a module shipment guidance miss. Although I don't think that this moves the needle for Trina, interested investors will have to investigate for themselves to determine if the warning signs that concern me are as concerning for them.