Rising Oil Prices Spur Investment
Oil prices have been hitting record levels consistently in 2008, and there is very little sign that the pace will slow anytime soon. As the price of oil rises, the interest in greener companies rises as well. Solar power is one of the top green energy contenders. (For related reading, see
Clean Or Green Technology Investing.)
If oil trends higher there could be a greater demand for shares of various alternative energy companies including those in the solar space.
The Risks
With all of the above in mind, it is important to realize that there are risks to investing in solar power. First of all, it's unlikely that individuals are going to make a shift to this technology en masse in the very near future. Switching to solar energy is expensive for homeowners and can cost thousands of dollars, and in this tight economy people don't have a lot of
disposable cash. In addition, although there are some environmental concerns, nuclear power is considered a popular alternative for power generation and the technology is unlikely to go away anytime soon.
Sunny Days Ahead for This Solar Stock?
Founded in 2001 and based in China,
SunTech Power Holdings (NYSE:
STP) is a solar module provider.
The company is coming off a pretty strong first quarter. In fact, in the period ending March 31, it earned $55.8 million (33 cents per diluted
American Depository Share (ADS)). That's a vast improvement over the roughly $26.1 million (16 cents per diluted ADS) it put up in the comparable period a year ago. According to the Associated Press, “adjusted to exclude certain one-time gains and losses, net income was $60.6 million (35 cents per ADS).” That's good news for the stock, because the Street was reportedly looking for just 28 cents.
Strong demand in Spain, South Korea and Germany were credited for the solid quarter. The Street currently expects the company to earn $1.58 a share this year and $2.57 a share in 2009. That's a more than 62% estimated jump in earnings on a
year-over-year basis, which peaks my interest because the shares currently trade at about 21.4 times the current year's
earnings per share (EPS) estimate.
This is definitely one solar company to keep an eye on, as it is expected to release its second quarter numbers on August 20, 2008. Solid numbers like could go a long way to reversing the downward trend the stock's share price has been suffering through since April 2008.
Bottom Line
Alternative energy companies are likely to be in greater demand in the future. As a result, I think that solar stocks have the potential to do quite well over time. It is important that you are aware many of these stocks, at least right now, are trading at a very high
multiple of earnings.
