Can Evergreen Solar Harness Greenbacks?

Over the past decade, energy tech has become almost as popular as biotech. All manner of would-be upstarts have come into the public market, just hoping that investors will subsidize the development of their particular brand of alternate energy -- be it fuel cells, solar power, microturbines, etc. While many pretenders have already taken the plunge into bankruptcy, some of the real deals could yet make a go of it.

Admittedly still in its early days, Evergreen Solar (Nasdaq: ESLR) looks like a potential survivor. As the name might suggest, Evergreen Solar is in the business of solar energy. Specifically, the company has developed proprietary lower-cost manufacturing processes for solar wafers, cells, and modules.

Evergreen hasn't had an easy run so far, but management has thus far been able to keep the company moving forward. In the second quarter, product revenue climbed 135%, although it still amounted to just under $11 million. Most importantly, gross margin for the quarter was positive.

The company has also worked to add cash to the balance sheet in order to fund further development efforts. Through a combination of debt and equity offerings, the company has left itself with about $155 million in cash on the balance sheet, but with $90 million in debt and over 60 million shares outstanding.

Evergreen's present technology allows it to use about one-third less silicon than competitors, which means better manufacturing margins. Better still, future iterations of the company's technology should lower the silicon requirements even further while improving efficiencies.

Additionally, Evergreen and its joint venture partner, Q-Cells, recently broke ground on a new production facility in Germany. This facility, for which the German government has chipped in a considerable amount, will triple the company's manufacturing capacity when it's up and running next year. That's a big boost, and it should further enhance the company's drive toward profitability.

Of course, there are abundant risks here. The market for solar power is still highly reliant on government subsidies, and most of the demand comes from overseas. What's more, Evergreen competes against some true giants -- companies like Sharp, BP (NYSE: BP), General Electric (NYSE: GE), and Kyocera (NYSE: KYO).

Valuation on a company like Evergreen Solar is exceptionally subjective, and the process is frankly more akin to valuing biotech companies. Small changes in your assumptions about the market five years from now can result in major changes to your present value estimate. On a more positive note, the market for solar power is already real, so future market-size projections aren't quite as speculative as they might be for other energy tech names.

Evergreen could be profitable in two years, since the market demand for solar power does not seem to be letting up. This could well be one of the riskiest stocks I've looked at, but among the alternative energy plays, it seems to have a better chance than most of realizing its potential. Investors must do their own due diligence here, but it's possible that this company could be headed for sunnier days.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).