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Never before have I gotten such a rude shock in my short investing career. Last Wednesday, I noticed that solar wafer maker LDK Solar(LDK) was trading down 10% on no news. I have been following this company for a while now and realized that its growth prospects are immense, and a 10% drop was be the perfect opportunity to buy a few shares.

I bought at $62, and I thought I was doing well when I saw the stock at $65+. By the time I came back from a late lunch, I saw the stock tumble 20% to the 50s, on a Piper Jaffray report that a former financial controller had raised doubts about the company's inventories.

I could not believe my ill-luck. The day that I bought the stock, it had to take a hit. Since then the stock has only been going down each and every day, with no hope in sight. The company's CFO has come out and issued positive statements saying that a former employee, Charley Situ, was leveling baseless accusations, and that a third-party audit had been ordered. He also said that Situ was not taking into consideration a lot of scrap silicon, which the company considers to be very much a part of inventory.

However, there seems to be no end to the carnage. The stock is now trading at $37, half of what it was 4 trading sessions back.

My take is that this is utter over-reaction. The stock is taking such a big hit primarily because the company is on the other side of the world in China, and that just makes things a lot more uncertain. I bought some more shares at $45, but even that proved to be a foolish decision.

To make it worse, Barrons came out with an article on the weekend telling everyone what they already knew, but just made it sound a lot worse. I personally believe that the company has been doing things right, and will come out clean in the third-party audit. Unfortunately, the stock might never return to the earlier levels, and there will be a cloud of doubt over the press release from the company.

I believe this is the perfect opportunity for a buy. If the company was really into any kind of fraud, they would not order an independent audit, and their CFO would not issue statements to the press, which can lead to his imprisonment if proved wrong. Though it will take some time for the doubts to clear, once the company declares its quarterly revenues, which the CFO says will double year-over-year, the euphoria should be back.

I will add to my position on any weakness from here. I am investing in this company, based on my faith in the management and I just hope they don't deceive their shareholders. I also think a 50% drop in share price on the basis of a rumor spread by a disgruntled, fired employee is sheer over-reaction. Good luck on your trade.

Disclosure: Author has a long position in LDK

Source: Buy LDK Solar's Panic Selling Drop