To: casinomom who wrote (175575 ) 7/3/2008 8:14:13 AM From: lexi2004 Respond to of 208838 The 'Problem' With Solar Companies is Not Really a Problem by: Raven Lebeau posted on: July 03, 2008 | about stocks: AKNS / CSIQ / ESLR / JASO / LDK / SOL / SOLF / STP / TSL / YGE Font Size: PrintEmail The news Tuesday that a Goldman Sachs analyst had downgraded Trina Solar (TSL) sent Trina and several of its competitors on a downswing. The analyst cited “cash flow concerns” that applied not only to Trina, but to “many” other solar companies as well. In the afternoon, the Motley Fool chimed in with the insight that companies like Solarfun (SOLF) and ReneSola (SOL) aren't doing nearly as well as their accounting numbers might let on. That's right, folks. Forget all those pesky little digits. Nobody likes math anyway. It's better to base your financial decisions on vague, unsupported opinions from people who, for all you know, have a vested interest in your agreement. As long as you're on the vague-opinions-from-shady-sources kick- here's one! Buy solar. I say that as someone with a few short puts. So you know you can trust me. No? You're not convinced? Well, my friend, it's my word against their's, so lets bring in a tie breaker- the numbers. Between 2005 and 2006, Solarfun's cost of revenue tripled. However, its net profits increased by a factor of seven. Why? Because part of their growth strategy is cost cutting. In 2007, the growth continued, albeit at a slower pace. In the first quarter of 2008, Solarfun earned $0.32/ADS. The return on equity for Solarfun was 22.31% in first quareter 2008, compared to 8.36% in 2007. That's almost a threefold increase in ROE! Moreover, Solarfun just entered a business agreement that will decrease raw materials costs. So what's the problem? The Goldman Sachs analyst and those who parrot his analysis cite concerns about the level of debt on Solarfun's balance sheet. The company is making money. That's a fact that no one can dispute. However, they might possibly have problems being able to pay that debt if their income suddenly and substantially decreased. Yes, you read that right. Really. The “problem” with Solarfun, Trina, ReneSola, and the other solar companies is the same “problem” that every corporation in the world has. They need to continue to make money in order to repay their debts. It's that simple. Check out the numbers on Trina, ReneSola, and the other supposedly shaky solar companies. Make a decision for yourself once you have the data in front of you and have assessed the situation. Don't take my word for it. Don't take anyone's word for it. The numbers are right there, telling us all we can ever really know about a company-- its past. As far as what might happen if they were to lose their income, that's pure speculation. The analyst says, “If they don't keep earning, they won't be able to pay off their debt!” Well, guess what? If they quadruple their earnings and halve their costs next year, they'll have a profit that is more than three times the sum of their profit and their cost from this year! It's true! And nobody cares. Why? Because we don't know if they can quadruple their revenue and halve their cost. And we don't know if they'll have a sudden drastic drop in income that will make them unable to pay their debt. All we do know, the only information we have, is what has happened. And what has happened is some very impressive growth.seekingalpha.com