What: Not a lot has gone right for Trina Solar Limited (ADR) today, and the stock is down 10% as the company fights reports that a partnership is going belly-up. It doesn't help that both the market overall and oil are down, both of which normally drag down solar stocks, but the big speculation is coming out of Asia.
So what: There were reports over the past 24 hours that a Malaysian solar panel facility hadn't gotten government approval, which would have been a blow to the company's expansion plans across Asia. But Trina Solar issued a release today that said its partnership with an original equipment manufacturer was on plan and that the partner's goal of shipping 400 MW of solar modules this year hadn't changed.
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The thought is that Malaysia doesn't want to be a pitstop for Chinese solar manufacturers trying to get around U.S. and European tariffs or price restrictions, which would be why an application would be rejected. But the local partner doesn't appear to be having any issues, according to Trina Solar, and Trina Solar itself doesn't have any applications in the country.
Those rumors are what the market is focusing on today, but investors should take a long-term view and ask if it even matters to the company's operations.
Now what: Trina Solar is in major expansion mode with the 500 MW Malaysian partnership and a production facility in Thailand that will make 700 MW of cells and 500 MW of modules. The question is whether or not that will lead to improving profits for Trina Solar.
Making commodity solar cells hasn't been a profitable business long-term, and Trina Solar has struggled to build a business that can generate solid returns for investors. Adding capacity to its existing business isn't a guarantee that margins will improve. I'd take a cautious approach to this solar giant, and would like to see income improve before jumping in, no matter what happens in Malaysia. Expanding capacity is only good if it's done profitably, and we don't yet know if that's the case with the Malaysia and Thailand facilities.
The article Why Trina Solar Limited (ADR) Dropped 10% Today originally appeared on Fool.com.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.
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