Is SmartHeat a Smart Investment?

Clean energy is hot again, and China looks to be leading the way. As shares of Chinese solar giants scorch higher after the nuclear disaster in Japan, companies that boost energy efficiency are enjoying similarly strong financial results.

Yesterday, SmartHeat (Nasdaq: HEAT  ) , a manufacturer of plate heat exchange (PHE) systems, finished another profitable year with outstanding growth. In 2010 sales grew 52% to $125.4 million, as sales of PHEs nearly doubled from 2009. And the bottom line remained strong, with earnings of $22.7 million, up from $15.4 million last year.

With coal prices rising, making plants more efficient will be China's focus going forward, which should help SmartHeat. And the company looks downright cheap, with a P/E ratio of 5.8 right now. That's partly because management can't seem to stop issuing shares, which will be a drag on the company's valuation, but why ruin a good story with details like that?

Efficiency is back in style
With high oil and coal prices, everyone is looking for ways to cut down energy consumption or find alternatives to traditional power generation. That's helping SmartHeat, as well as equipment manufacturers using other fuels, like FuelCell Energy (Nasdaq: FCEL  ) and GT Solar (Nasdaq: SOLR  ) . FuelCell makes efficient fuel cell technology, while GT Solar makes the equipment driving China's solar manufacturing boom.

The biggest word of caution on SmartHeat is to watch what management is doing with your money. Net income may have been up 47.4%, but earnings per share only rose 17.2% because of an increased share count. That may be acceptable with high growth, but if growth slows, earnings per share could be headed backward.

Have you added SmartHeat to your watchlist yet? Well, what are you waiting for?

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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