Weak Demand Forecast For Trina Solar Renders Us Bearish

We reiterated our bearish stance on Trina Solar (TSL) two days back and from that point on, the stock has shown a decline of 19 percent. We maintain our negative stance on the stock after looking at the cut in the company's third quarter guidance for profit margins and shipments. The company cut its guidance due to duties worth billions of dollars on the imports of solar equipment from China to the U.S. The company's high inventory level, imbalance in demand and supply and continuously decreasing profitability are growing concerns for investors.

TSL is trading at a high price to sales valuation of 0.12x, at a premium when compared to its peers-Suntech Power (STP), JA Solar (JASO) and Yingli Green Energy (YGE), with price to sales of 0.06x, 0.11x and 0.11, respectively. It is trading at a discount when compared to First Solar's (FSLR) P/S of 0.69x. The company has a high debt to equity ratio of 127%. The stock is also burning cash. We do not see any plans from the company to cope with the regulatory threats and diversify its business to other emerging markets. Therefore, we advise investors not to take long position in the stock. Read more