2011 will be marked as a year when a fledgling solar industry hit a roadblock and its components saw their shares spiral downward. After massive expansion and supersonic growth in the past few years, this was the year when the industry entered its shakeout mode and we saw some companies fall by the wayside.
However, as I have been saying all along, solar is the next frontier in energy, so it makes sense to scout out the best companies in this space and see if they are worthy of our investment dollars. Today, I will take a look at LDK Solar (NYS: LDK) , whose stock rose in the just-concluded quarter despite slipping deep into the red, and see whether the company has the wind in its sails to give investors reason for joy in the new year.
What gives us hope
First, let me give you some background on the Chinese company. LDK has been compounding its revenue at the rate of 23% annually over the past three years. Revenue growth over the past 12 months is an impressive 40% as the company performed terrifically well in the earlier part of the year before bad times struck in the form of subsidy withdrawals in key European markets and the European debt crisis.
The above factors dragged LDK to successive quarterly losses and squeezed its margins. However, I feel the coming year may turn out to be better. LDK is a major player in the fast-growing Chinese solar market and more than one-third of its revenue comes from this region. Now China is focusing big time on solar installations and the industry is expected to grow at the rate of 1 gigawatt next year onward. Add to that a potential 50% subsidy to solar equipment providers and we see LDK on the path of resurrection in another year or two.
Relief in sight
Solar stocks bounced back even after the companies reported huge losses in the previous earnings season as investors believe the industry has finally found its bottom and the worst is over. Suntech Power (NYS: STP) , another major Chinese player, sees the industry bettering itself next year, which gives me some more hope for the solar sector in the coming year.
In spite of the industry being under stress this year, LDK is standing shoulder to shoulder with its bigger peers, and even above some of them in terms of cost efficiency. Sporting a gross margin of 22%, LDK stands toe to toe with Yingli Green Energy (NYS: YGE) , one of the most promising Chinese solar stocks, and handsomely beats the likes of SunPower (NAS: SPWR) , one of the best in the U.S., and ReneSola (NYS: SOL) . With an aggressive expansion policy into newer geographies like India, South Africa, Australia, and the Middle East, we have another reason to believe that the company will turn the tables in the long run.
The year has been traumatic for the solar industry, but hopefully the sun will shine on the industry and LDK Solar in 2012. If you are looking for a promising solar stock that will reap rewards in the long run, LDK Solar is one stock you should take a look at or keep track of by adding it to your watchlist by clicking here.
I think LDK Solar is a great pick for the future, but our analysts have selected a different stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free.
At the time thisarticle was published Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.