Solar technology stocks have been literally running off the charts. Some are approaching a three-month, 300% run:
And this came at a time when most solar companies were reporting mounting losses for the first quarter.
So what happened? Why are these stocks flying in the opposite direction as common sense? And is it too late to buy?
Solar Technology Stocks Defy Logic
I’m confident investors are responding to an “it could’ve been worse” scenario.
Case in point is Yingli Green Energy (NYSE: YGE), which recentlyposted a $20.7 million quarterly loss and reduced its outlook for 2009.
The stock climbed 32% over the next three days!
Rinse and repeat for JA Solar (NASDAQ: JASO), Suntech Power (NYSE:STP), and the worst offender, Canadian Solar (NASDAQ: CSIQ), which isup 40% three days after reporting a loss of $0.13 per share.
By my calculations, this puts many solar technology stocks at thehigh end of reasonable valuation levels. In layman’s terms, that meansthese stocks are trading at several times what they’ll earn for theyear.
Solar Technology Stocks: Example and Conclusion
Without getting too stuffy, stocks generally trade in line withtheir peers through what is called a valuation multiple. Let’s continuewith the Canadian Solar example from above.
Given CSIQ’s current overcapacity and low gross margins, the shouldbe trading–in my opinion–at a multiple of 9 to their future earnings.
Forecast 2010 earnings per share for CSIQ is $1.16, which means fairvalue is around $10.44. Yet the stock is trading above $13.00.
This is true for others in the group as well, though the broad multiple for solar stocks right now is about 12x.
What I’m getting at is that solar stocks, despite all their futurepromise, are currently a bit overbought. I’d be looking to take profits.
There will certainly be a shakeout before the next round of quarterly earnings comes out. That’ll be the time to buy.
To green energy and green profits,