The biggest gainer is Littleton, Colo.-based Ascent Solar Technologies (ASTI), a maker of thin-film modules. Ascent’s stock has risen nearly 500% through September. Following it is Hoku Scientific (HOKU), Trina Solar (TSL), SunPower (SPWR), First Solar (FSLR) and JA Solar (JASO).
Anyone who invested in these stocks earlier this year is probably not inclined to look a gift horse in the mouth. For the rest of us, it makes sense to ask whether these stocks are rising more on expectations of strong fundamentals in the future or on old-fashioned expectation.
The short answer is, it’s a little of both. For a more satisfying answer that’s a bit longer, let’s look at these stocks’ valuations. According to Yahoo Finance, the forward price-earnings ratios of the six companies are:
- ASTI – N/A
- HOKU – N/A
- TSL – 17.6
- SPWR – 44.6
- FSLR – 90.0
- JASO – 27.4
Unsurprisingly, the further a stock has risen, the higher the valuation is. It’s more notable that the two biggest gainers of the bunch have not posted a profit and are not likely to do so in the coming year. Money-losing stocks surging like crazy…hmm, where have we heard that one before?
Now let’s take a look at the price-revenue ratio as a means of comparison.
- ASTI – N/A
- HOKU – 30.6
- TSL – 6.8
- SPWR – 15.1
- FSLR – 36.2
- JASO – 11.2
Of the six, Ascent – the biggest gainer of the year – had no revenue last year. And it’s had less than half a million in revenue in the first two quarters of this year, putting the trailing 12-month price-sales ratio above 90. To be fair, Ascent is in the development stage, and recently signed a deal with Norwegian aluminum giant Norsk Hydro that is expected to bring in revenue starting next year. That accounts for the surge in ASTI’s stock that pushed it past Hoku.
Ascent may in fact deliver on the revenue and profits that investors are clearly expecting from it. But betting on profits – let alone revenue – that dangle out in the future is the very definition of speculation. So there is without question froth entering in the sector. Froth tends to draw short sellers, and that can make stock trading very volatile. Anyone earnestly hoping to hold onto these stocks in the long run had better have a strong stomach.
Some of these companies, notably Trina Solar and JA Solar, have more reasonable valuations and, along with SunPower, are emerging as major players in an unquestionably growing industry. Of course, JA investors will face dilution from an imminent secondary offering, but they don’t seem worried about that right now.
Solar stocks, especially those based in China but listed in the U.S., had a mixed batch of earnings last quarter. Their reports for the third quarter, which will start in a few weeks, will continue to separate the winners from the losers and possibly add to the volatility.