Short Sellers Should Be Terrified of Solar

The short interest in solar stocks has set up investors for a short squeeze if the fourth quarter is as good as anticipated.

Feb 2, 2014 at 4:00PM

There's a deep-rooted pessimism in the market against solar companies. Maybe it's the after-effect of Solyndra or a belief that solar power is only competitive with the help of government subsidies and handouts.

There was a time when many of those beliefs were true, but today the solar industry is competing with the grid on economics, not subsidies. The solar feed-in tariff rate in Germany is lower than the cost of power from the grid, SunPower (NASDAQ:SPWR) recently began construction on a utility scale project in Chile that will sell power in the spot market, and First Solar (NASDAQ:FSLR) is building utility scale projects in the U.S. and selling power for nearly half the retail price of electricity.

When you consider that it's only becoming cheaper to build solar projects and demand will rise exponentially as costs fall, investors shorting solar stocks are playing a dangerous game. Fight the facts all you want, if my predictions are right and solar companies post impressive profit numbers for the fourth quarter these stocks could skyrocket. Some of that fuel will come from short sellers themselves.

Short interest in solar has gotten insane
When you short a stock, you're borrowing it from your broker and selling it to someone else with the promise to return the share to your broker in the future. If the share price goes up, you lose money and eventually your broker will limit the losses they're willing to take on the share you borrowed.

That's what's called a short squeeze. When a share's price starts to rise, short sellers or their brokers panic and buy back shares, increasing the number of buyers in the market. The most famous short squeeze in the past year was Telsa Motors, who was propelled from around $30 per share a year ago to more than $100 in a short time because of short sellers buying in bulk.

TSLA Chart

TSLA data by YCharts.

Short interest becomes a problem when everyone wants to close their short positions at the same time. If the percentage of shares outstanding sold short is too high, the short squeeze is more likely.

What's interesting in solar is that short interest has gotten out of control. Below, I have a table of the percentage of shares on the market sold short and the number of days the days to cover, or number of shares short divided by average daily volume.


Percent of Float Sold Short

Days to Cover




First Solar






Yingli Green Energy (NYSE:YGE)



Trina Solar (NYSE:TSL)



Source: Nasdaq and SEC filings.

What's most notable is that 31.7% of SunPower's shares are sold short. This pulls out the 66% of the company Total owns and aren't going to be bought or sold in the open market anytime soon. That's even higher than Tesla's short interest when it went on a hot streak.

First Solar, SolarCity, Yingli, and Trina Solar aren't all that far behind at around 10% of shares sold short.

Why shorts should be worried
What should be worrisome for shorts is that financial conditions for solar companies are only getting better and Q4 may be a blowout. China reportedly installed as much as 12 GW of solar in 2013 and up to 8 GW of that may have come in the fourth quarter. If the reports are true, Yingli and Trina will have seen a tremendous amount of demand and likely raised prices as well. Financials may have improved so much that both companies could make a profit for the fourth quarter and project a profit in 2014.

First Solar and SunPower are already profitable and if they surprise investors with higher margins in Q4, these stocks could shoot higher. Then there's SolarCity, which continues to wow investors with the speed it can grow installations in the residential market.

Top-end solar companies have been outperforming expectations during 2013 and, with the momentum building in Q4, we could be in for a short squeeze when earnings come out. I certainly wouldn't want to be betting against solar right now.

A few more growth stock picks for you
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: long January 2015 $5 calls, long January 2015 $7 calls, long January 2015 $15 calls, long January 2015 $25 calls, and long January 2015 $40 calls. The Motley Fool recommends and owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers