Solar IPOs shine

Recent offerings, most out of China, have surged along with the sector in general. Is a correction coming?

By Steve Hargreaves, staff writer

NEW YORK ( -- Talk about a sun spot.

The solar power sector has been rolling in dough lately as concern over global warming and dwindling oil supplies has fueled massive investor interest in renewable energy companies.

Recent solar power offerings, most out of China, have surged along with the sector in general. Is a correction coming?

Since the start of the year, the 17-company solar component in the Wilder Hill Global Innovation index has soared 75 percent.

This recent surge in stock prices seems to indicate that now is the perfect time to take a company public.

Money pouring into solar initial public offerings has set a record in 2007 - $4.7 billion so far, according to the research firm New Energy Finance. That compares to $2.2 billion in 2006 and $1.5 billion in 2005.

But with interest so high and recent performance so stellar, is now really the time to get hot for solar companies?

"There's a lot of media hype in current solar stock prices," said Jenny Chase, a London-based solar analyst at New Energy Finance. "We certainly can expect a correction at some point."

The media hype isn't totally unjustified.

Oil and natural gas prices have skyrocketed in recent years. Scientists are more certain than ever global warming is real, is largely caused by burning fossil fuels, and could have devastating effects. A switch to renewable energy like solar could ease the effects of both these things.

Chase said solar companies have been benefiting from a series of recent changes to government policies, implemented to address these rising concerns.

In California, Gov. Arnold Schwarzenegger plans on putting solar panels on a million roofs, and he's vowed the state would help pay for them. In Germany, the subsidy for solar power production is being reduced, but not by as much as previously thought, while In Spain it was recently increased.

This enthusiasm is one reason some recent IPOs have done well.

Many recent IPOs come from China where companies can take advantage of cheap labor and a manufacturing subsidy.

On U.S. exchanges, LDK Solar (Charts) and Yingli Green Energy Holding (Charts) both debuted in the last three months. Both are up over 60 percent.

According to New Energy, three other companies debuted on exchanges overseas in the last three months.

In the last six months, four Chinese companies went public on U.S. markets - JA Solar (Charts), Solarfun (Charts), Trina Solar (Charts) and Canadian Solar (Charts).

Not all the companies have done well.

China Sunergy (Charts) is down 27 percent since its IPO in May. Analysts blame the drop on the company not having enough long-term silicon contracts in a tight market to manufacture all their solar products.

Because these companies are foreign and so new, not many analysts cover them. That means earnings projections are bound to be volatile.

Using Thomson Financial 2008 earnings projections however, some solar companies seem like relative bargains. LDK has a 2008 price to earnings ratio of 18, China Sunergy trades at 15, and Yingli trades at just three.

By contrast, the big U.S. solar firm SunPower has P/E ratio of 35.

SunPower (Charts) shares have also shown an impressive gain - 67 percent in the last 6 months.

And despite the relatively higher P/E ratio and the recent share runup, some analysts are still bullish on the company and the sector.

"These companies have real products and real profitability," Jeffrey Bencik, an analyst at Jefferies & Co, said while distinguishing the recent jump in solar power shares from that of tech companies in the late 1990s. "When you consider the potential growth of the industry, [stock prices] are actually inexpensive."

The potential for future growth was a reoccurring theme for other analysts as well.

"Once you reach grid potential, demand is just going to explode," said Jesse Pichel, a clean tech analyst at the Minneapolis-based investment bank Piper Jaffray.

But creating enough solar energy to make a substantial contribution to the nation's electricity needs, especially when solar power remains far more expensive per kilowatt hour than other utility favorites like coal or, more recently, wind is far from certain.

And as New Energy's Chase points, if other technologies come along, like thin film solar that doesn't use solar panels at all, "then all these companies are in danger."  Top of page