Why do I say this? At the risk of being blunt, I say this because all of these companies are failing at the most basic task of any business: They’re failing to earn a profit.
Measured according to generally accepted accounting principles, all four of the solar companies that Raymond James upgraded yesterday booked losses for the past 12 months. Two of them (Suntech and Trina Solar Limited (ADR) (NYSE:TSL)) are expected to lose more money next year as well. Three (everybody but First Solar) were also burning cash, reporting negative free cash flows over the past 12 months. The fourth — First Solar, Inc. (NASDAQ:FSLR) — could turn free cash flow negative as early as the current quarter, judging from what it told us in its latest earnings release.
Suffice it to say, this is not the kind of trend we should be looking for in our investments. After all, if a company cannot earn profits for itself, what hope does it have of earning profits for us, the investors who own it? Yet after more than a decade in business (the youngest of these firms is already a dozen years old), these firms still aren’t making any profit.
The way I look at it, a company that cannot earn a profit is worthless as an “investment.” It is — quite literally — worth $0 to me as an investor. While it may take some time for the stock to get there, that’s definitely the direction in which these stocks are heading. And Raymond James, in pulling its sell ratings on these four stocks Wednesday, appears to have pulled the parachute early.
These stocks all have farther to plunge.
The article This Just In: Upgrades and Downgrades originally appeared on Fool.com and is written by Rich Smith.
Rich Smith is short shares of First Solar. The Motley Fool has no position in any of the stocks mentioned.
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