SunPower Corporation (SPWR), First Solar, Inc. (FSLR): Can Chinese Solar Companies Make a Profit?

The challenge for Chinese solar
Owning Chinese solar stocks is risky because they hold a lot of debt and compete primarily on price. That’s not a recipe for the high margins necessary to break even or the ability to pay back debt in the future.

To make matters more challenging, China is no longer funneling unlimited funds to the solar industry, so these companies don’t have money to expand and drive the next generation of solar investment.

At the very least, you can see that it’s a harder road for companies with massive debt loads than for those without. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), LDK Solar Co., Ltd (NYSE:LDK), and Suntech have an incredibly steep climb ahead of them, and I’m not sure equity holders will be left with anything at the end of the day. After all, Suntech and LDK Solar Co., Ltd (NYSE:LDK) have already defaulted on loans, which is usually the first step to bankruptcy (Suntech’s subsidiary is actually bankrupt but the parent company is not).

Fool contributor Travis Hoium manages an account that owns shares of SunPower Corporation (NASDAQ:SPWR) and personally owns shares and has the following options: long January 2015 $7 calls on SunPower, long January 2015 $5 calls on SunPower Corporation (NASDAQ:SPWR), long January 2015 $15 calls on SunPower, and long January 2015 $25 calls on SunPower Corporation (NASDAQ:SPWR). The Motley Fool has no position in any of the stocks mentioned.

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