LDK's Business Remains Strong Despite Potentially Debilitating Allegations

| About: LDK Solar (LDK)

It has been three weeks since Charley Situ, a former Financial Controller at LDK Solar (NYSE:LDK), came out with allegations that the company was exaggerating its inventory. A lot has been said since then, with the CFO categorically denying all those allegations and the company standing by its claims and ordering an independent audit by KPMG, the result of which is not yet clear.

Let's put the inventory issues aside for a minute. In the last one month, LDK Solar has signed contracts to supply wafers to Canadian Solar (NASDAQ:CSIQ), Solarfun (SOLF), Chinalight and Taiwan's Mosel. All these contracts put together are valued at 1.64 billion US dollars. Now, if the claims of fraud were true, I would doubt any company would do business with LDK and get burned in the process.

To make things worse, the stock is being manipulated like never before. What surprises me is the way the funds, analysts and even the press have been guilty of this. Every downgrade is mentioned over and over again by WSJ and Barron's, but upgrades from Reuters and Needham are nowhere to be seen on headlines.

Barron's released an article on LDK, revealing no new information, which it now posts weekly. The dirtiest action of all is that WSJ posted a column on the 13th of October about Charley Situ sending some information to the SEC. Yahoo Finance used the same article as a headline back then. The same article with the same date (October 13th) was reposted yesterday on the frontpage of both.

If this is not manipulation and headline shock, what is? It required hundreds of people to complain to WSJ and Yahoo to point out their mistake and get them to remove the post. The damage was done, though. The stock is down 10% again. Whenever the stock rises and shows signs of recovery, an analyst downgrades it, citing the inventory issues.

Do these analysts even realize that the stock is down a whopping 50% from when the inventory issues were raised? It's cut in half, and they still will not leave it alone.

LDK also is to blame in this. What is the CEO doing? Why is he not issuing any statement to calm investors' fears?

For now, I think the damage has been done, and overdone in fact. The company reports earnings on the 1st of November, and I think that's when we'll have full details of the audit. Until then, I remain long and strong and unperturbed by the manipulation. I would advise the longs to think hard before selling. Nothing has changed over the last couple of weeks; no news has come in and so there should not be any reason to sell.

Disclosure: Author has a long position in LDK

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