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Dark Clouds Gather as LDK Readies Earnings Report

NEW YORK (TheStreet) -- LDK Solar has so many storm systems overhead it's hard to know which one to fear the most.

I'm not an enthusiastic believer in solar as an investment and for good reason. Almost everyone who has tried their luck in the solar space watched their investment evaporate into thin air.

LDK Chart
LDK Chart

LDK data by YCharts

LDK Solar is a manufacturer of multicrystalline solar wafers, which are the principal raw material used to produce solar cells. LDK's headquarters and manufacturing facilities are in China and the company's office in the United States is located in Sunnyvale, Cal.

LDK's biggest obstacle is turning a profit from production. Once again, Wall Street is looking for a significant earnings loss to be reported before the market opens Tuesday. Analysts expect LDK to lose 96 cents a share, an improvement over the $1.46 lost in the corresponding period a year ago.

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After reviewing LDK's balance sheet and cash burn rate, the $1.39 current share price may be generous. LDK is more or less broke from a realistic financial picture. At the close of 2012, the company held about $265 million in cash and short-term investments. After adding in inventory and subtracting for the near-term liabilities, the balance sheet turns upside down quickly.

LDK depends on European sales, and if you've turned on the news lately you know the popping of Champaign corks has slowed over the last four years without an end in sight. Germany, arguably the strongest member of the European Union, cut solar subsidies, as did other member nations.

The loss of the subsidies cast storm clouds over solar that haven't dissipated. In fact, Chinese solar companies are right in the cross-hairs of European trade negotiators. Europe may increase import duties for solar panels from 37% to 68%, depending on the firm.

To begin, Europe announced import tariffs of 11.8% , which the market took as favorable news. LDK, JinkoSolar , ReneSola , Yingli Green Energy and First Solar either opened higher or traded higher during Thursday's trading session.

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It appears LDK sellers took advantage of the pop in share price and sold into the news. LDK closed at $1.40 Thursday, just slightly above its $1.37 low point on the day. Shareholders have not been rewarded for their patience; the stock has fallen 15% in the last year, and the average analyst target price is $1.10.

I can't think of a good reason to buy this stock. However, for investors who don't mind playing the Wall Street "Lotto," LDK can be treated like a stock option.

In LDK's case, you're not losing time premium from an upcoming expiration date, but the negative cash flow that may lead to bankruptcy acts nearly the same. In a nutshell, LDK is in a race against the clock to reverse its losses.

Invest accordingly.

52-Week Range: 71 cents to $2.36

Book Value: -$3.05

LDK Revenue Quarterly Chart
LDK Revenue Quarterly Chart

LDK Revenue Quarterly data by YCharts

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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