— by by Mitchell Clark, B. Comm.
It wasn’t too long ago that the hottest stocks around were those related to the solar energy industry. Companies like First Solar, Inc. (NASDAQ/FSLR) and Evergreen Solar, Inc. (NASDAQ/ESLR) were spectacular moneymakers for those who owned the stocks at the right time and for the right duration. Their fantastic capital appreciation on the stock market was equaled only by their fantastic fall from the good graces of the investment community. First Solar has held up much better than Evergreen Solar.
This industry clearly experienced a valuation bubble due to a rallying stock market, interest in Chinese solar cell manufacturing, as well as strong investor sentiment related to alternative energy investments. A lot of these stocks corrected significantly and many haven’t experienced the same recovery as in the broader market. Most of the Chinese-related solar manufacturers have seen their stock prices rebound significantly, but domestic producers like First Solar and Evergreen Solar haven’t experienced the same kind of resurgence. This has created a unique circumstance where these companies are actually becoming attractively valued.
Evergreen Solar was a stock market darling from 2003 to 2006. The stock went from under $2.00 a share to around $16.00 during that period. Then the stock dropped by half, but it proceeded to gain everything back by the beginning of 2008. This roller coaster ride made it a trader’s dream stock, and then it became one of the most attractive shorts in the marketplace.
Since its high just before the start of 2008, Evergreen Solar’s stock price dropped all the way back down to the $2.00 per share level. In fact, it almost disappeared entirely. The Street doesn’t have a consensus view on how well this business will do in the future. Some analysts have a $1.00-per-share price target on the stock, while others think the stock can go to $6.00 per share.
The issue for Evergreen Solar is profitability, or rather a lack of it. The company’s revenues continue to grow, but the Street has lost its confidence in the company’s ability to deliver on profits.
From my perspective, this company could become an excellent turnaround investment in the future. Right now, the stock is really struggling. Depending on how things develop over the next quarter or so, this stock might have the makings of a great trade. It’s too early to consider it right now, but I’d keep an eye on this company over the next few months.
Investment risk is always at a maximum level in turnaround situations, but there really is only one way to make big bucks from the stock market — buy low and sell high.