Last week, fellow Fool Stephen Ellis wrote a persuasive article called "Solar Is Hot! Well, Maybe Not," in which he spelled out some reasons why investors might want to proceed with caution when considering an investment in Energy Conversion Devices (NASDAQ:ENER). The gist of his argument lay in the fact that the company was trading at a value of eight times its sales. It was a well-reasoned argument, and I agree with his assessment of the company
Stephen also pointed out that although the company's sales have come primarily from its solar division, 2007 earnings are expected to drop nearly $20 million.
When I considered this news in conjunction with the fact that a number of other solar companies, including Evergreen Solar (NASDAQ:ESLR) and SunPower (NASDAQ:SPWR), are trading at high valuations (SunPower's P/E ratio is 443), I concluded that solar might not be as "hot" of an investment as its proponents claim.
An uncanny series of events, however, has caused me to reconsider this bearish assessment.
Let me explain.
On Friday morning, I woke up well before sunrise to prepare for a business trip to Berlin. As usual, I began my day by scouring a variety of science and technology Internet sites. The first item that caught my attention was a little story about a new video making on the rounds on YouTube.
The clip, "HAIL -- The Return of the Sun," depicts in a very dramatic and vivid fashion the extraordinary potential of solar power. It's pretty cool, and I encourage you to watch it if you have two minutes to spare.
If you don't, the key point of the video (actually, it's a commercial) is that "970 trillion kilowatt hours of energy fall from the skies every day" and it's unfortunate that, as a planet, we haven't figured out how to make better use of this clean, cheap, and sustainable energy source.
Not being above the annoying habit of sending videos to my closest friends, I forwarded it to a colleague of mine who's interested in alternative energy. In return, he sent me another story from earlier in the week about how Energy Photovoltaics was installing a series of photovoltaic windows in Microsoft's (NASDAQ:MSFT) new "School of the Future" in Philadelphia.
Having gotten my fill of digital news, I then strolled outside to pick up a copy of my old analog news source -- TheMinneapolis Star Tribune. Inside was a big picture of astronauts from the Space Shuttle Atlantis unfurling a massive 240-foot solar array manufactured by Lockheed Martin (NYSE:LMT).
The article noted that when it's fully operational in 2010, it will provide the International Space Station with one-quarter of its power -- 110 kilowatts of electricity, or enough to power 55 regular households.
I mentally filed away these three references to solar power in the deep recesses of my mind and departed to catch my flight. As fate would have it, on the way to the airport, my cab driver was tuned in to public radio. The station was replaying excerpts of a debate between the leading candidates for governor where I live. I caught only a portion of their remarks, but I did hear one of them tout the environmental and economic benefits of investing in alternative energies, "including solar power."
To be honest, even this reference to solar power made little impression on me. It was only with the fifth that a little light started to flicker in my head.
This is because, after I squeezed into my seat for the first leg of the international flight, I was startled to see the gentleman across the aisle from me reading a book titled Got Sun? Go Solar! It was a primer on the benefits of installing solar power.
When I asked him about it, he said he was reading the book because he was seriously thinking about installing solar cells on his house because it was "his way of doing something positive for the environment." (I'll note that he did add the caveat that he still hadn't made up his mind because he hadn't "run the numbers yet." I guess you could say he had "green" tendencies but was still more concerned with that other type of green -- the almighty dollar.)
But my encounters with solar power were not yet finished. After I departed for Berlin, the flight attendant asked whether I would like a copy of TheFinancial Times. I said yes, and upon turning to page 2, I was shocked to find yet another reference to solar power. Smack in the middle of the page was an article titled "Building a Greener House," which prominently featured solar power.
This reference convinced me that I had to write an article about this extraordinary run of encounters with solar power. So I whipped out my laptop and started pecking away at a draft of this article. When I was through, the passenger next to me asked what I was writing. I told him I was writing about solar power, and he informed me that he had just left his job at Siemens and was now working for a private U.S.-based company that was developing solar fabrics.
All of this is to say that these seven solar-related events, while admittedly random, have led me to conclude that solar power is rapidly approaching a tipping point.
I haven't yet invested in any solar power companies, and I still think that many are wildly overpriced. But I'm going to get serious about doing my due diligence on companies such as Suntech Power Holdings (NYSE:STP) -- which appears to be trading at a much more reasonable valuation -- because something tells me brighter days are ahead for the burgeoning solar industry.
Interested in other sun-related Foolishness?
- Suntech Power: The Future Is Bright
- These Stocks Are Cooler Than You
- Is the Price of Power Getting You Down?
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Fool contributor Jack Uldrich is the author of two books on nanotechnology, including Investing in Nanotechnology: Think Small, Win Big. He owns stock in Microsoft. The Fool has a strict disclosure policy.
