The solar industry can't seem to catch a break. Politicians think that solar power is too expensive, investors think sales projections are too rosy, and even when oil and coal prices go through the roof they can't get any love.

Solar stocks -- Chinese firms in particular -- are trading at earnings multiples that are usually reserved for companies that are in decline. But this is solar, the next energy frontier. We're expecting massive growth. What in the world is going on?

Below are a few of the companies with head scratching P/E ratios.


Trailing P/E Ratio

Forward P/E Ratio

Trina Solar 6.90 6.46
Yingli Green Energy (NYSE: YGE) 8.55 7.86
JA Solar (Nasdaq: JASO) 3.99 4.94
Hanwha SolarOne (Nasdaq: HSOL) 3.51 4.88
Canadian Solar 8.84 5.86
LDK Solar (NYSE: LDK) 10.69 3.94
Suntech Power (NYSE: STP) 6.22 7.85
JinkoSolar (NYSE: JKS) 3.59 3.12
Renesola (NYSE: SOL) 4.78 4.54

Source: Yahoo! Finance.

There are a few things that may be going on:

Market manipulation
This is the most popular theory from comments on Motley Fool solar articles. The theory goes that big, bad Wall Street is trashing these stocks so they can pick the stocks up cheap for themselves. I'm not privy to what Wall Street is doing, but I have a hard time believing there's some grand conspiracy at work.

The business isn't as healthy as it seems
Analysts have been telling us for years that sales are going to disappoint, putting pressure on margins and therefore lowering profits. Every few months we get a scare from a market like Italy or Spain that have feed-in tariffs out of whack with the market, and every quarter another market picks up the slack. Falling margins are something we should be concerned about, but I have yet to see this prediction come true.

The market doesn't understand solar
My theory is that the market still doesn't understand solar power yet. Investors have been following oil, coal, natural gas, and even nuclear power for so long that they can't get their heads around this whole solar thing. They'll point to its intermittent supply or its higher cost per watt than natural gas and dismiss it as a fad.

But they fail to realize that solar power is already cheaper than peak natural gas (the power source it should be compared against) and costs are falling rapidly. It will be years before the intermittent supply becomes a big issue and by then we'll have technology to fix that problem. I don't know if it will be compressed air storage, batteries, or something we haven't invented yet, but this is what engineers are for. They solve problems investors think are technological deal breakers.

Maybe it's one of these factors -- or all three -- but something is keeping solar stocks in the doghouse. I think they'll break out someday, but until the skeptics are convinced that solar is here to stay, we can expect solar stocks to trade at a discount to the market.  

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.