Will Suntech Longs Get Burned Again?

With shares of Suntech Power Holdings Co. Ltd. (NYSE:STP) trading at around $1.50, is STP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

At the current time, the stock is trading at $1.41, which represents a 6 percent drop from when this article was prepared. Well, that happened fast. Then again, Suntech longs have grown accustomed to big drops. Suntech longs are also extremely passionate. That’s a plus, but passion doesn’t equal success. A lot of longs have been throwing around the phrase “bottoming phase” for the industry. However, this “bottoming phase” isn’t a viable catalyst for upward momentum. It’s simply another way of saying “these stocks are getting crushed and deserve to go up now.” If there was some substantial evidence that made a case for the long side, it would be a different story. But that’s not the case.

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As far as Suntech goes, this is a company with atrocious margins, an ROE of -86.50 percent, a weak capital structure, and oversupply in an industry with weak demand. It’s also still possible that Suntech will be delisted from the NYSE. Further negatives include being defrauded by an Italian solar company, failed investments, and China tariffs. If that’s not enough, the vast majority of analysts who cover this stock are on the sell side.

Let’s take a look at some more important numbers prior to forming an opinion on the stock, even though this opinion might be more obvious than the tail end of a large bass being smacked across your face…