Solar power specialist Suntech Power (NYSE:STP) reports fourth-quarter and full-year 2006 earnings results at sunrise on Monday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? A baker's dozen of analysts follow Suntech, splitting their votes 10-to-3, buy-to-hold.
  • Revenues. On average, they're looking for an astounding 149% growth in quarterly sales to $221.4 million.
  • Earnings. Profits are predicted to more than double to $0.20 per share (and incidentally, the company's shares are represented on the NYSE as American Depositary Receipts at a 1:1 ratio -- so what the shares earn, the ADRs earn as well).

What management says:
In February, Suntech announced that it had raised half a billion dollars in convertible debt, paying interest of just 0.25% per annum. The firm says it will be using the resulting funds primarily to (1) expand its manufacturing capacity, (2) "purchase or prepay for raw materials," and (3) pay off an existing bridge loan that it took out when acquiring MSK last August.

Considering the explosion in sales we see the analysts predicting above, I'd say reason No. 1 is a good one. Given the constraints we've read about in the global supply of silicon used for manufacturing photovoltaic cells, No. 2 looks pretty good, too. As for paying off the bridge loan, I haven't found any statement from the company on the rate ABN AMRO (NYSE:ABN) is charging Suntech for the use of its funds, but I'll bet it's a darned sight more than 0.25%!

What management does:
Suntech's brief history as an NYSE-listed company (it listed in December 2005) doesn't give us a lot to go on in the trendspotting sphere. The last couple of quarters seem to show a decline in profit margins on all levels (gross, operating, and net). Still, we'll need some time to see how seasonal this business is, and whether such "sequential" trends have any significance compared to year-over-year results. Meanwhile, it's just nice to know that Suntech is netting more profit pennies per revenue dollar than either of the other two "name" solar companies, Evergreen Solar (NASDAQ:ESLR) or SunPower (NASDAQ:SPWR).

Margins

12/05

3/06

6/06

9/06

Gross

26.5%

30.7%

28.2%

23.3%

Operating

24.7%

22.9%

22.0%

21.3%

Net

11.9%

21.5%

20.7%

17.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data does NOT reflect trailing-12-month performance, as usual in these tables. Rather, it reflects profit margins in the named quarters only.

One Fool says:
As Suntech's sales climbed 83% over the last three quarters, we've watched even greater growth on a couple of balance sheet lines where we ordinarily don't like to see it: inventories and accounts receivable. The former has more than tripled, while the latter is up 26 times over.

For a fast grower like Suntech, I'm willing to give the company the benefit of the doubt on these two items as the business matures a bit and develops more of a track record. That's especially true since management appears to be intentionally loading up on raw materials in preparation for potentially exploding demand. That said, in future quarters, I'd suggest that investors watch these trends closely. Ideally, we'll want to see sales growth close the gap with, and overtake, growth in both unsold inventories and uncollected bills sometime soon (natch).

In the meantime, pay close attention to the firm's 20-F filings (which you'll be seeing once a year -- if last year is any guide, it should appear about two months after release of the Q4 results). Look in particular towards the last pages of these filings for the section on inventories. There, you'll want to see raw materials growth outpace inventory growth in general, and finished goods growth in particular.

Suntech Power is a Rule Breakers selection. To see what else David Gardner and his Foolish band of analysts have recommended, take the newsletter for a free, 30-day trial.

Fool contributor Rich Smith does not own shares of any company named above.