We constantly hear the stress on going green and developing alternative sources of energy not only for conserving energy but also for fighting global warming. Galloping world prices have also been responsible for increasing attention on finding renewable sources of energy.
As petrol prices have risen remarkably with expectations of further growth, non-economical renewable resources are expected to become economical. Hitherto many of them could not be developed because of prohibitive costs.
Solar energy is one of the most prominent alternative sources of energy. Many countries have been toying with the idea of its development. Unfortunately its share in overall energy sector is a measly 0.1 percent. According to statistics, solar power has recorded a growth of 22 per cent during the last 10 years, with 35 per cent having been recorded during the last 5 years alone. However, it must be remembered that we are talking about a small base on which these growth rates are calculated.
Prominent Solar Stocks
With the spectacular growth of solar energy, there have been rising expectations, reflecting extremely high valuations of solar stocks. First Solar has been having a valuation of more than 182. Everyone seems to be catching up for a share of solar companies. Most prominent solar companies which found favor with a large number of investors are:
• First Solar (FSLR)
• SunPower Corporation (STP)
• Suntech Power Holding Ltd. (LTP)
• JA Solar (JASO)
• Solar Enertech Corp (SOEN(
• Nano Solar
• Miasole
• China Sunergy (CSUN)
• LDK Solar (LDK)
• Solarfun (SOLF)
In addition to the above there are a large number of smaller players which are still under the development stage. Most of these are young companies. Take the case of First Solar. Even this company started only in Nov 2006.
On The Thresholds of High Tech Bubble
To many critics, investing in solar stocks is just like investing in high tech stocks towards the end of the last century only to burst. To them there is much hype associated with these stocks. The main reason for this impression is that it is extremely difficult to develop economical and viable solar energy. Costs associated with these are extremely high and therefore, it is very difficult to be profitable.
This is also confirmed with the behavior of equity prices. With all time highs, most of these stocks fell by as much as 50 per cent at one time. These are extremely volatile and may not be suitable for majority of investors.
It is also opined that there are many other high growth companies in which investors can put their incomes. There is no need to risk one's money in these risky stocks.
Many solar stocks like Solarfun and First Solar rose several fold during 2007 alone. Because of the greed involved in stock markets, many investors tend to get attracted and ultimately lose their money.
Most of these companies are china based. We may not be sure of the final valuations of their businesses.
The Bright Side
However, all is not gloomy with solar stocks. Solar companies have billions of long term contacts, they have bright guidance, they are backed by their national governments and in some countries there is plenty of sunshine available, ready for exploitation.
Venture capitalists are pouring in huge amounts of money in this energy sub sector. Who knows some solar stocks may turn out to be gold mines.
Recommendation
Investment in solar companies seems to be very risky, though lucrative. Investors in these should pay attention to their PEO ratios. Another lucrative option can be solar ETFs. Moreover some companies like GE are spending heavily in solar power though as a fraction of their total investments. It might be advisable to invest in these companies instead for the sake of safety.