Taking aggressive steps to boost sales can be a wise move. But if you try to do too much too fast, investors can quickly grow concerned if rapid expansion plans are creating too much risk. That was the concern with LDK Solar (NYSE: LDK) in the past year, which borrowed nearly $2 billion to try to become a key player in various niches of the solar market, from raw silicon processing to completed solar panels.

Throughout 2009 and the first half of 2010, LDK Solar kept hitting roadblocks in its bid to ramp up output in its new business segments. So after hitting almost $70 back in 2007, investors abandoned the stock, and it’s traded between $6 and $12 ever since. And its bonds sold off sharply, trading at a big discount to par on concerns that a looming $1 billion in debt obligations could lead to massive dilution.

Just a few quarters later, the financing and production concerns are waning, and LDK Solar now looks far healthier. Though I doubt we’ll see the lofty heights of 2007 ever again, business is finally turning around, and shares could move back into the $20s in 2011. Here’s why…

Massive scale
LDK Solar is world’s second largest multi-crystalline solar wafer manufacturer, with about two gigawatts of capacity and roughly 10% global market share. Wafers are the principal raw material used to produce solar cells. The company has been spending heavily to complete a massive production complex in China that the company hopes will provide a path to even higher market share.

Market share is nice, but to regain investor interest LDK Solar has to prove its ability to generate much higher cash flow to help support its debt-laden balance sheet. And that’s precisely what’s happening. After three straight quarters of very weak or even negative cash flow, the company surprised the Street in the second quarter with $53 million in cash flow from operations, its highest level in several years.

That rising cash flow was met with another positive surprise: In September, LDK Solar announced that the China Development Bank (CDB) would step in and backstop up to $8.9 billion of LDK’s loans in the next five years. That’s enough to meet any existing debt concerns, but leaves plenty left over for any future expansion.

And the good news kept on coming. In October, global solar wafer prices started to rebound, leading many analysts to start boosting sales and profit forecasts for LDK Solar. Then in early November, LDK Solar posted another very impressive quarterly report, highlighted by $676 million in sales, roughly +10% ahead of forecasts and $0.72 in earnings per share (EPS), roughly +67% ahead of consensus estimates. The company also issued 2011 sales guidance that was some +30% to +50% ahead of most analysts’ forecasts, thanks in part to improved industry pricing, but also due to faster than expected capacity additions.

With all the good news in place, analysts now think that LDK Solar can earn around $1.75 a share in 2011, roughly double what they had been forecasting back in the summer. A few analysts, such as Piper Jaffray’s Ahmar Zaman, think EPS will exceed $2.50 next year. Not bad for a company that lost more than $2 a share in 2009. And annual cash flow should exceed $500 million in 2011, reversing a trend of massively negative cash flow in recent years.

To be sure, some investors are concerned that the whole industry is adding too much capacity and predict that pricing will take a hit in 2011. That’s a minority view, but even if they’re right, EPS is still likely to exceed $1.50, and shares trade for just eight times that bearish view. The high end of the Street sees EPS of around $3 next year, and the price-to-earnings (P/E) ratio is around four times that bullish forecast.

Let’s assume that EPS comes right in line with the consensus forecast of $1.75. Slap a multiple of 10 on that view, and shares would trade up to $17.50. Yet if EPS exceeds $2 next year, as many suspect, then that target multiple means shares would double from current levels. Piper Jaffray recently boosted its target price to $25, roughly +130% above current levels.

Action to Take –>This is a very volatile sector, and LDK Solar could easily retrench a bit after doubling since the summer. But if you can stomach the volatility, the Sshares look like they could double again.

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