Thursday, April 10, 2008

$400,000,000 for LDK Solar, My Interpretation.

The part that I'm most concerned about is the $200 Million for Stock Buyback.

What does this do for LDK?

Really, I think it's great, and I'm saying "Buy, buy, buy!*"

This money gives Mr. Peng a hammer to use on short fingers. On the market, money is power. Until now, Mr. Peng didn't have a load of cash with which to balance the influence of Unfriendly Wallstreet Money.

$200 Million isn't alot of money, but it's sure significant.

At $35, that amount of money is equal to about 5.7 Million Shares of stock. Just the existance of that money in the hands of LDK acts as leverage against short interest. Short leaders must fear the prospect of dumping a large number of shares on the market, only to have them consumed by LDK instead of driving down the price and killing the momentum of the stock as the Short requires.

What can the unfriendlies do? Well, they can wait and hope that LDK screws up. If there are delays in the big three lines, then shorts can pounce. But even so, LDK can now respond. In the near term, though, a few random days of sucking up a few extra shares should give shorts some stress, and could start a round of short covering, particularly since at this time there are so many shorts already underwater. Remember what happened to Solf when it came off of the Nakes Short Threshold List.

Another current advantage that I see right now is that some group of individuals has just put $400 Million into LDK, on the faith that they'd be paid back on that loan plus interest (or in valuable shares). These people have new incentive to to be watching LDK's performance, and even that additional awareness of the company is likely to increase demand for the stock, as details on the parties involved filters out.

The key is momentum. If LDK can build up even the smallest positive momentum, it can potentially build to be self-sustaining over time, based solely on new Long Investment, allowing LDK to save their money for emergencies.

Let's get some momentum going.

As a final note, I should add that the great wildcard here is the performance of the overall market. I can't help but be very Bearish on that market, and it's a whole different question as to whether LDK can hold momentum if the market goes into another meltdown mode. We've just started Earnings Season, and the short term risks are high on that front, IMO. This doesn't hurt the long term, it just complicates the short to medium terms.

* The usual disclaimer applies. Do your own DD, and know what you're buying.

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Thomas said...

Thanks, I just recently bought some shares in this company as I see there's only one way this baby is going.

D Pickard said...

Hi Thomas, it's good to have you on board! Keep in mind, though, that there is alot of short interest here, and they want to keep the price down. In addition, Solar is very volatile (particularly in today's market). Be aware of these things, and don't freak out if there's a bad movement. IMO, patience is the key here.