Evergreen Solar (NASDAQ:ESLR) has overcome one of its major stumbling blocks with a $100 million, four-year supply contract with S.A.G. Solarstrom. This German company, founded in 1998, builds solar farms and sells the electricity to businesses and utilities. Until now, Evergreen's three largest resellers accounted for approximately 62% of product sales, but the company lacked any long-term commitments. The Solarstrom deal finally gives the company a solid long-term contract.

Evergreen made headway in 2005 at getting the financing it needed to grow. It netted $62.3 million from the sale of stock, $86.9 million from a convertible subordinated note offering, and an additional $18.8 million from a private placement. Some of that money was used to raise the manufacturing capacity at its U.S. facility to 15 megawatts (MW) and to commence construction of a $55 million, 30 MW, majority-owned joint venture in Germany.

As good as all this news sounds -- it sent the stock to a new 52-week high of $15.91, up 12.9% above the previous close -- investors would be wise to look at the overall solar market and consider Evergreen's unique risks.

Let's start by quoting the company in its latest earnings report filed with the SEC: "Today, the cost of solar power substantially exceeds the cost of power furnished by the electric utility grid." If the company's dependence on government subsidies isn't enough, there's this: "Further capacity expansion beyond 15 megawatts, as well as further process and technology improvements, will be required to achieve overall profitability." For that matter, despite subsidies and expected capacity investments, the company stated in its SEC filing that it expects to incur substantial future losses and may not obtain profitability moving forward.

The news gets even worse. The company will still need to raise "significant additional capital" to continue with its business plans. So more share dilution and/or borrowing is on the horizon for a company that already has a not-so-small 61.3 million shares outstanding, and expects to assume additional leverage on a debt-to-equity ratio of 1 (and only $42 million in revenue on a trailing-12-month basis).

There's even more bad news. The company has only one supplier of silicon, and it has no long-term supply agreement with this company -- leaving the possibility of supply disruptions and some exposure to open-market price gyrations.

One last fact should convince most Fools that this stock is way too risky, even for the most adventurous speculators. Analysts expect Evergreen to lose $0.21 a share in 2006, in a market that's growing rapidly and has solar units at deep-pocketed competitors like Kyocera (NYSE:KYO), BP (NYSE:BP), General Electric (NYSE:GE), Sanyo, and Sharp.

There are more than 20 companies in the world producing solar cells. Solar energy attracts massive investment and big predators. While today's news shows an improvement in Evergreen's business outlook, investors would be wise to avoid these richly valued shares until the company has a clear path to profitability.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.