Does Wall Street Have Inside Info on This Stock?

Does Wall Street have insider info about a company again? LDK Solar LDK is a small-cap company that specializes in solar-powered hardware products. Based in China, LDK has recently been downgraded by Wells Fargo and Needham & Co. While several small, Chinese companies have been implicated in wrongdoing and fraud, is LDK Solar one of them?

The answer is no trader will know until it is too late. No Wall Street trader, that is. It may only be speculation, but it is possible that Wells Fargo WFC and Needham liquidated any positions tied to LDK's performance.

Assuming a more innocent outlook, LDK does not look like a bad company at all. Its cash on hand is roughly twice than the cash pile in 2009. Other current assets increased as well. Property, plant, and equipment also increased drastically.

Like with assets, liabilities increased significantly too. In 2009, short-term debt was $297 million; it increased, however, in 2010 to $2.33 billion. Payables also increased by 2.5 times. Interestingly, long-term debt decreased. One possible explanation is that the company has been paying off its long-term debt continuously while issuing a lot of short-term notes in 2010. Retained earnings also increased a lot in 2010, thereby increasing shareholders' equity.

LDK Solar's top-line increased highly in 2010. Despite a large output, operating expenses did not increased very much, preserving much of its revenues earned. Interest and tax expenses did not increase significantly, and the company posted a high net income. As a result of net income, depreciation, and accounts payable, LDK's cash from operating activities were very high compared to historical levels. Cash used in investing activities marginally increased, as a result of increased capital expenditures for PP&E. Cash provided by financing activities decreased, primarily because the company repaid more debt than previous years.

The company's financial metrics look somewhat positive as well. When considering price/earnings, price/sales, and price/book value, LDK appears to be undervalued compared to competitors. It also has higher margins and a higher return on equity than other comparable companies.

While LDK Solar's books appear to be positive, investors must be wary of small companies boasting such impressive results. Certain trends, especially with the company's debt position, do not necessarily enforce the company's legitimacy and reaffirm its health. A couple Wall Street investment banks downgraded the company, which may confirm suspicions of deceitful reporting by LDK. Investors, as with small-caps and foreign equities, will seriously have to determine if LDK Solar is legit or if it is another stock poised to implode.