Why Canadian Solar Plummeted Today

Key Points

• Canadian Solar's second-quarter results came in below expectations, with a tepid outlook.

• President Trump also said his administration would not approve any more solar projects, calling wind and solar "the scam of the century."

• The entire solar sector was down on the news, but Canadian Solar especially so.

• 10 stocks we like better than Canadian Solar ›

Shares of solar module manufacturer and project developer Canadian Solar (NASDAQ: CSIQ) plunged 18% on Thursday as of 2:05 p.m. ET.

Canadian Solar faced a double whammy today. Not only did President Donald Trump make comments on social media that eviscerated the entire solar sector, but Canadian Solar also delivered an underwhelming Q2 earnings report.

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A miss on both lines and uncertainty about the future

In the second quarter, Canadian Solar's revenue grew just 3.9%, with an adjusted (non-GAAP) net loss per share of $0.53. While both figures improved relative to the prior-year quarter, they handily missed analyst estimates.

The company did point out its solar module shipments came in at the higher end of the guidance range, and gross margin exceeded the high end. However, that gross margin was helped out by the one-time recognition of an unrealized gain for sales-type leasing, and module volumes were driven by a surge of orders in China. In other words, these figures were higher than normal, with the gross margin improvement based largely on accounting.

CEO Shawn Qu also forecast a slowdown, saying, "Following the surge in installations in China during the first half, we expect demand to normalize as the market adjusts to a new paradigm." To that end, management forecast just $1.4 billion in revenue at the midpoint for the third quarter, down from $1.73 billion in the second quarter, with gross margin normalizing down to 15% at the midpoint.

Speaking of Qu's mention of a "new paradigm," President Donald Trump cast a pall over the entire solar sector today with a post on his social media platform, Truth Social, writing:

It wasn't clear exactly what prompted Trump's threat to not approve any more solar projects. Electricity prices have increased over the past year, but experts attribute that to the rise of energy-hungry artificial intelligence (AI) data centers and onshore manufacturing, initiatives that Trump has supported, and which have lifted prices in states with both lots of renewables and little renewables alike.

Image source: Getty Images.

Solar stocks under the microscope

Solar stocks have continued to largely struggle this year, seemingly validating the fears ever since last year's election. Clearly, the administration is hostile to solar and wind projects, so the industry will have to figure out how to navigate this overhang.

On the bright-ish side, only 23% of Canadian Solar's development pipeline comes from North America. So while more restrictions on U.S. solar projects would be a headwind, the company may be able to continue diversifying away from the U.S. for its growth.

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Billy Duberstein and/or his clients no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.