Shares of LDK Solar (NYSE: LDK) hit a 52-week low yesterday. Let's look at how it got here and whether clouds are ahead.
How it got here
LDK Solar had an interesting day yesterday. The stock opened at a new 52-week low after the company released a terrible earnings report. But the stock rose throughout the day and ended 7% higher. I covered the earnings report here, so let's take a step back and look at what's really happened over the past year at LDK Solar.
The decline in solar stocks as a whole has been fast and furious this year as the industry struggles with over capacity and rapidly falling prices. Manufacturers from First Solar (Nasdaq: FSLR) to Suntech Power (NYSE: STP) have seen margins drop and have swung to a loss as a result. LDK Solar has been hit harder than most because it is a supplier of polysilicon and solar cells in a market that has too much of both, but its stock has actually held up better than some competitors.
The problem going forward for LDK is that manufacturers are using their own capacity instead of buying from LDK. This has helped push gross margins well below industry leaders Suntech, SunPower (Nasdaq: SPWR) and First Solar while cell supplier JA Solar (Nasdaq: JASO) stays ahead as well.
|
|
Gross Margin (most recent quarter) |
Market Cap. |
Total Debt |
|---|---|---|---|
|
LDK Solar |
(10.1%)* |
$419 million |
$3.3 billion |
|
Suntech Power |
9.9% |
$487 million |
$2.3 billion |
|
JA Solar |
0.5% |
$245 million |
$830 million |
|
SunPower |
7.9% |
$722 million |
$975 million |
|
First Solar |
35.1% |
$1.63 billion |
$664 million |
Source: Company filings and Yahoo! Finance. * LDK Solar's gross margin is adjusted for a one-time write down in the fourth quarter.
The heavy debt load LDK has built up is also a major red flag for investors. With sales falling, margins declining, and debt hanging over the company it's no wonder the stock is trading near a new low.
What's next?
The current industry challenges aren't going away any time soon so it's hard to see light at the end of the tunnel for LDK Solar. The company will record a significant level of photovoltaic system project revenue this year, which is higher margin than module manufacturing, but I don't see it overcoming the manufacturing challenges it faces. There's also LDK's debt to consider, which is like an anchor around the company going forward.
Investors in the CAPS community have rated the stock at two-stars, one away from our lowest rating, a sign that there's not a lot of faith in the stock. I don't see a turnaround any time soon because financial results are getting worse and worse.
I'm even putting in an underperform CAPScall on my CAPS profile to pack up this pick. Disagree? Let me know what you think in our comments section below.
Interested in reading more about LDK Solar? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.
