Despite my best efforts to ignore what the rest of the investing crowd is doing, sometimes they make too much of a fuss not to notice. About a year ago, it seemed that real estate was all anyone could talk about. (How quickly things change!) Now the flag-wavers and stock-pushers have moved on to the latest phenomenon: solar power.

Recent events got me wondering whether I could spot a bubble, so I devised the following (admittedly unscientific) test:

  • Has someone who has never before had any interest in investing cornered me at a cocktail party and grilled me for 20 minutes about [insert sector here] stocks?
  • Have those mysterious Google (Nasdaq: GOOG) AdWords for random [insert sector here] stocks been popping up in non-investment websites?
  • Have [insert sector here] stock prices failed to react to news that every shred of common sense tells me they should react to?

When I have three 'yes' answers, then BAM! I have a potential bubble. And when I insert the word "solar" into the three questions above, things don't look too good for that emerging sector.

Over the holidays, I was bombarded by questions about solar stocks from a ragtag group of investors, each telling me that their three-month-old investment was up 40%. Similarly, while reading one of my favorite blogs dedicated to environmental design and lifestyle issues, I kept seeing a "HOT STOCK ALERT!" popup beckoning me to make a quick buck off the latest solar tech bonanza.  If I wasn't paying attention before, I certainly am now.

The industry's hot, hot, hot
Solar had an incredible run last year. While the market fell roughly 10% over the past year, solar players First Solar (Nasdaq: FSLR), Evergreen Solar (Nasdaq: ESLR), Suntech Power (Nasdaq: STP), and SunPower (Nasdaq: SPWR) rose hugely. First Solar alone is up far more than 400%.

Despite First Solar's massive appreciation, I just don't get it at these prices. With a forward P/E ratio at around 80, First Solar makes even Google look cheap. These numbers send shivers down my value-investing spine.

A company like Google will keep growing -- the only question is how quickly. We know that Google is a dominant player in its industry, with a proven product set and plenty of healthy demand. Let's not forget that Google is also very, very profitable.

With solar, we can't even say that much with certainty. 

Is there a solar bubble?
I don't pretend to know for sure. But with three 'yes' answers in my bubble test, I'm beginning to wonder.

Solar energy's speedy growth has stemmed partly from large subsidies and alternative energy credits -- not just because demand has made it economically viable. It still lacks the technological maturity and low costs needed to capture a meaningful share of energy production any time soon.

Here in the U.S., however, there's no evidence that any necessary government funding will appear. The energy bill recently signed into law by President Bush had all the stipulations that would have helped the development of solar energy removed. Major incentives and subsidies went instead to support the emerging biofuel and ethanol industries.

Meanwhile, despite a correction in the sector over the past few volatile weeks, solar investors appear to be treating that ominous circumstance as little more than a speed bump. Appropriate? You tell me, Fools.

Fool contributor Rimmy Malhotra has no positions in the companies mentioned in this article. Suntech Power is a Rule Breakers recommendation. The Motley Fool has a disclosure policy.