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Canadian Solar: Major Issues To Know Before Investing

The poor performance of solar-related stocks is no news to anybody. Low commodity prices make solar panels unattractive due to high costs. Although I agree that society must pursue sustainable energy sources, investors must also take into consideration the cost of these technologies to determine their viability.

The Guggenheim solar ETF (NYSE: TAN) is composed by the largest solar companies worldwide with First Solar, an American corporation, being the largest holding composing 8.06% of the fund. Other major holdings include SolarCity, SunEdison, and Sunpower. Canada is also represented through Canadian Solar (NASDAQ: CSIQ), which accounts for 4.22% of the ETF. In general, the solar sector has largely underperformed the S&P 500 in 2015, Table 1. However, I want to stress why this is not the right time to pick up the falling knife in Canadian Solar.

Ticker

Weighing

in ETF

% YTD

TAN

-25.40%

FSLR

7.52%

-8.03%

SCTY

7.01%

-23.26%

SUNE

5.15%

-65.86%

SPWR

5.01%

-25.59%

CSIQ

4.22%

-34.44%

Table 1. Weighing and year-to-date performance of several companies composing the Guggenheim solar ETF, TAN

The negative aspects of Canadian Solar

Canadian Solar is failing to maintain sustainable retained earnings, and thus investors should avoid it.

In terms of revenue, the company posted sales for $636 million for Q2 2015, up from $623 million in Q2 2014. However, costs of revenue increased by 7% over the same period. In brief, revenue remained flat, while costs of revenue increased.

Moreover, Canadian Solar does not have a solid strategy to reduce operating expenses and to position itself in a more competitive stance against other solar companies. For instance, the company reported operating expenses for $64.0 million in Q2 2015, up from $50.5 million or 28%...


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