Ride or Slide: The Solar Sector

12 June 2008

I’ve been getting a lot of questions lately about the solar sector. So instead of covering just one stock, I decided it’d be better to cover the sector.

Solar technology and sales have both been growing by leaps and bounds lately. Not only are solar cells far more efficient than just five years ago, but they are cheaper and improving all the time.

But there’s one thing that really speaks to the industry. It’s still young and very fragmented. Solar Fun (SOLF), Canadian Solar (CSIQ), Trina Solar (TSL), Ascent Solar (ASTI), Akeena Solar (AKNS), and World Water & Solar Tech (WWAT.OB) all have market caps of under $1 billion. Evergreen Solar (ESLR) has a slightly larger market cap.

Three of these seven companies (SOLF, CSIQ and TSL) are operating at a profit. Plus, their revenue and profits are growing by triple digits. And the most striking thing about them is that they are cheap. With forward P/E’s ranging from 2.07 to 12.42. If you look at their PEG (Price to Earnings Growth), they are all under 0.5.

Two of these three (CSIQ and TSL) have projected growth in excess of 19% for the next five years. And how about the last one, SOLF? Shockingly enough, they have projected earnings growth of 6.6% for the next five years!

If you believe in efficient markets, this is proof that that’s a farce.

How can a company in a booming sector that grew revenues in the first quarter by 85.5% and net income by 97.9% from a year ago, be projected to grow earnings by less than 7% for the next five years? Maybe it’s just me, but this seems like extremely low expectations.

What this means is that SOLF is likely to exceed analyst expectations in the years ahead. And as long as they exceed expectations, their shares should move higher. That makes SOLF one of the most attractive plays in the solar market today.

By Charles Delvalle

Disclaimer...The subject matter expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.