Will the Sun Shine Again on GT Advanced Technologies?
Wall Street enthusiasm can be tepid at best for some companies upon which the Motley Fool CAPS community has bestowed its top honors. So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
Of course, as much as we love our CAPS community, don't buy a company just because it's garnered top ratings. And don't sell it just because Wall Street says to, either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
A confidence game
Oil may ride high as tensions mount again in the Persian Gulf, but other forms of energy remain at some of their lowest levels. Coal has crashed, natural gas is neutered, and solar sits amid a polysilicon glut that's taken the industry down with it.
While that's causing headaches for polysilicon suppliers like LDK Solar (NYS: LDK) , as long as manufacturers continue wanting to churn out more of it, the glut should benefit polysilicon equipment maker GT Advanced Technologies (NAS: GTAT) . Solar shops are going to need to upgrade their equipment to keep expenses low or they're going to get burned. GT Advanced Technologies gets four out of five stars on CAPS.
Better technology for making photovoltaics may eventually emerge, but right now the horizon still looks clear for silicon-based solutions to continue their dominance and that means GT should rise with it.
It's not you, it's me
The problem isn't so much that GT doesn't have advantages in the market, it's just that the market isn't what it used to be and I find it difficult to see solar assuming a competitive position in the race for cheap, plentiful energy.
It's quite clear that without subsidies solar isn't cheap. Rail all you want against the subsidies oil enjoys, but they're entrenched and probably not going anywhere anytime soon. In times of austerity like we're in now, breaking through the ramparts to join in the handouts isn't going to happen.
Europe has just about done away with tariffs supporting solar and subsidies here to solar shops have left a bad taste as one boondoggle after another has gone belly-up, costing taxpayers hundreds of millions of dollars. Abound Solar was the latest to declare bankruptcy, taking down $70 million of a $400 million loan guaranteed by the Department of Energy.
Doing less with less
Profits in general are hard to find in solar. JA Solar (NAS: JASO) just recorded losses that were much wider than anticipated even though shipments exceeded the high end of the solar shop's guidance; the 366 megawatts shipped were still 19% below last year's efforts. Debt is weighing down LDK, Suntech Power (NYS: STP) , and Yingli Green Energy (NYS: YGE) . The industry doesn't give the impression of one that is growing, but rather withering away to a "last man standing" position.
While my Foolish colleague Travis Hoium has pointed to GT Advanced Technologies' fairly impressive cash cushion as a floor upon which to build (three-quarters of its market cap consists of cash in the bank), with industry conditions what they are, it's difficult for me to recommend it as an investment. Travis admits he doesn't see it using that money to buy back shares or pay a dividend, so to me that suggests it's holding onto the money to survive even harder times that are coming. Analysts noted GT missed analyst expectations last quarter on both the top and bottom lines for the first time in over two years, so the slowdown is catching up to the equipment maker.
Its sapphire business for the LED industry, which has quickly become its largest segment, may hold more promise, though fellow sapphire specialist Rubicon Technology continues to have profit problems of its own and industry pricing remains difficult.
GT's stock is down almost 70% from its highs, even after having bounced off its absolute lows, and analysts are looking for it to post revenues of $223 million in the current quarter, down 3.5% from last year. With earnings coming in at a meager $0.06 per share, some 85% below the year-ago period, GT is very much like the solar industry it supplies: a shrinking opportunity.
However, CAPS member shahart sees its diversified portfolio as providing protection so that while "the solar market may be in a downturn, and it may experience over supply, ... each of this company's three segment provides enough gross profit to justify its current price."
I've got an underperform rating on CAPS for GT, but add its stock to the Fool's personalized stock-tracking service and tell me on the GT Advanced Technologies CAPS page or in the comments box below why you think I'll be burned by that CAPScall.
What's wrong with that?
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.