Forbes.com writer Josh Wolfe thinks solar energy-related stocks are “overheated.”
There is no doubt the solar stocks are hot right now. In the first half of this year solar-based companies raised a record $4.7 billion in capital via IPOs, according to U.K.-based research firm New Energy Finance, more than double the amount raised in solar IPOs during all of last year.
Venture capital and private equity funding for solar firms also is setting records, with $1.4 billion in the 12 months ending June 2007. And solar is actually profitable - RBC Capital Markets forecasts annual profits will reach approximately $7.7 billion in the solar sector this year, and $11.5 billion in 2011.
Wolfe:
But despite the rush of capital and excitement, there are signs that a cloud is forming over solar stocks. First, most of the IPO excitement stemmed from a handful of new issues out of China. These stocks had a double shot of PR. The IPO pipeline for the latter half of 2007 appears relatively dry. Also many of these shiny new companies no longer look cheap–they are trading at greater than 50x earnings. Take Phoenix-based First Solar for example, a leader in thin films, its stocks is up more than 250% in 2007 and it has a P/E of 148.
My view is that the solar market is overheated and a correction is in order. But the good news is that the technology underlying the solar sector is strong, and the prospect for profitable investing in this sector over the long term is good. Here is how I handicap the solar market…
Read how he views the solar market here.
Solar isn’t headed for anything like a dot-com bust, but there will always be both success stories and failures in an emerging technology sector. Invest with caution. And I’d steer clear of companies whose “profitability” is based largely on government subsidies or incentive programs, which can disappear.
A sideways solar investing play: invest in companies that are incorporating solar power (and other “green” technologies) into their business, which brings the promise of reduced costs and, thus, higher profits.
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