American investors tend to root for the home team. In the solar space, that's proven painful for shareholders of Evergreen Solar
Evergreen tried to put its best foot forward, highlighting shipment levels, improved gross margins, and cash generation for the fourth quarter. Overwhelming these points was the gigantic non-cash writedown that Evergreen took on its investment in the Sovello joint venture with Q-Cells and REC. That European venture, formerly known as EverQ, once appeared to foretell Evergreen's bright future. The company has long been in breach of its loan covenants and is now facing possible insolvency.
I was right about the foretelling at least: Evergreen, too, has been in violation of a loan covenant since last year's first-quarter report. That said, with $112 million on the balance sheet as of the end of the fourth quarter, the company appears to have more than enough liquidity to build out its 100-megawatt Chinese facility. It's just not clear to me that the company will produce a product that's competitive with offerings by the likes of Trina Solar
As for ECD, the CEO's prepared remarks in the quarterly press release were all sunshine, as he spoke of "progress," "traction," and "momentum." The stock certainly has momentum, unfortunately it is downward. ECD shares haven't traded at these depths since 2004!
In the quarter, revenue was around half the prior year level, at $52.9 million. Inventories, meanwhile, ballooned to $120.8 million. Even with all the steps the company has taken to tackle underutilization and overhead, it appears that demand for ECD's thin-film laminates is still far short of the company's lowered expectations.
I'm all for cruising the 52-week low list for value stocks, but in a sector this competitive, a solar turnaround is a tall order. Mean reversion can be a key ally when it comes to contrarian investing, but I wouldn't bet on it in this case. SunPower
