Five Hot Solar Plays: The Fundamentals

Yesterday, in part 1 of this article, Larsen Kusick overviewed the top five solar power plays, including First Solar(FSLR Quote), Energy Conversion Devices(ENER Quote), SunPower(SPWR Quote), SunTech Power(STP Quote) and Trina Solar(TSL Quote). In part 2, he looks at the companies on a valuation basis.

Looking at valuation on a price/sales basis, you can see how wide the range is among these names. I used consensus estimates for full-year 2008 and 2009 for these calculations. Remember, historical data is useful for painting the backdrop, but when doing valuation on a stock, we need to use forward estimates.

The lesson here is that price/sales appears to be of limited use in valuing these solar plays. If nothing else, we can see how the thin-film names (First Solar and Energy Conversion Devices) are well ahead of their polysilicon peers in terms of earnings and higher price/sales multiple. The numbers also suggest that Trina is extremely cheap, but I'm still doubtful that this metric is useful in making decisions over whether any of these names should be bought here.

Since I'm not satisfied with the valuations generated by price/sales, let's move on to the tried-and-true price/earnings ratios. ...