Although the solar industry has been going through a rough phase this year, a few players believe the gloom will fade away soon. LDK Solar (NYS: LDK) is one such player. In this solar industry installment, I will take you through the fundamentals of LDK, a company that hopes to see sunny days in the ongoing quarter despite reporting huge losses in the one gone by.
The feel-good factors
The company's compounded annual revenue growth over three years stands at 41%, whereas in the last 12 months revenue has shot up an impressive 91%. This is incredible considering that the industry is having a tough time this year as subsidy cuts in major markets like Germany and Italy have pulled down the prices of solar products.
The last two quarterly results have come as a dampener for LDK because of the slowdown the industry has been witnessing, but the company is positive about its prospects. LDK looks to more than double its module shipments in the current quarter along with development of its production capabilities. To boost its prospects further, LDK is foraying into emerging markets such as China, India, South Africa, the Middle East, and Australia.
The worrying inventories
Growing levels of inventory are concerning, though. The slowdown in the industry has led the company to accumulate inventories, and they've jumped an alarming 93%. Let's see how LDK lines up against its peers in this area, which determines how well a company is selling its products.
Inventory Turnover Ratio
Change in Inventory
(year over year)
JinkoSolar (NYS: JKS)
ReneSola (NYS: SOL)
Yingli Green Energy (NYS: YGE)
Source: Capital IQ, a Standard & Poor's company.
Quite clearly, LDK has suffered as a result of the weakness in the industry and has stacked up inventories considerably when compared to others. Also, it sports the lowest inventory turnover, which means LDK needs to boost its sales in order to achieve its positive outlook in the ongoing quarter. Hopefully, the moves that the company is making will help it push up sales.
Let's take a look at how the company stacks up against its peers.
Yingli Green Energy
Source: Capital IQ, a Standard & Poor's company. TTM= trailing 12 months. NM= not meaningful.
LDK is the most expensive of the lot when we look at it on an enterprise-value basis in the first column, but that is mainly because of the high level of debt the company has. Management plans to bring the debt down, and for this purpose, LDK is planning to spin off its polysilicon business to raise funds.
However, the company is one of the cheapest from both trailing and forward P/E perspectives. Although analysts see the forward P/E at 2.7, I wouldn't be surprised if LDK beats this estimate as it has good potential for growth going ahead. To me, it looks as if the company is currently undervalued, and it may break new ground in the ongoing quarter. At least its intention of achieving revenue of $630 million to $680 million, versus Street estimates of $585 million, reflects that.
The Foolish prophecy
LDK seems to be making the right moves despite suffering a setback in the just-concluded quarter. With an enhanced guidance and plans of expansion in place, LDK looks like an intriguing investment avenue.
To stay on top of the latest news and views about LDK, add it to My Watchlist.
At the time thisarticle was published Fool contributor Harsh Chauhan does not own any of the stocks mentioned in the article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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