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Previous year private rounds of financing valued Silver Springs at much higher multiples -- as much as $3 billion -- than current sector sentiment would support. With the sector trading at less than 10 times earnings now, it comes down to what investors are willing to pay for the smart grid space.

Sean Hannan, analyst at Needham & Co., said the general IPO market and general market issues don't help, but "caution with smart grid offerings" is part of the Silver Springs IPO issue. He said Silver Springs is trying to position itself as a wireless networking technology story, but at core it's a smart grid solution provider.

"Investors have seen smart grid decimated and anything tying Silver Springs to the utility space is slower speed. It isn't front end of the tech curve and they want to be associated with true tech thought leaders."

4. There's a takeout premium in all of these stocks not being realized.

Last year, Toshiba bought European-based Landis+Gyr and Schneider Electric bought Telvent, both deals struck at roughly 10 times multiples. So where is the takeout premium of at least 10 times for the rest of the stocks in the sector like Itron and Elster?

Schuman says there is strategic value in these names given the other global conglomerates among the "usual suspects" bidding for Telvent and Landis. The likes of Siemens, GE ( GE) and ABB ( ABB) are always rumored to be sniffing around in the smart grid space, and the smart grid pure plays left are trading at lower multiples than what Toshiba and Schneider paid.

That's one more reason why these stocks don't need to "shoot the lights" out in terms of new market growth to see an incremental multiple expansion.

5. Better to be an industrial than a pure play in smart grid?

The takeout argument brings up one last important point about the danger of pure plays in alternative energy .

Toshiba announced on Monday morning that it expects $12 billion global smart grid sales by fiscal 2015, with $1.8 billion in sales to be generated in the U.S. That's a long-term time horizon that makes sense for a conglomerate that has a balance sheet on which the smart grid "lumpy" revenue is a blip in any given year, and it may support an acquisition at these levels.

It also shows that any near-term opportunity in these smart grid stocks -- with the North American market coming off its stimulus cycle, European economics to support energy policy a wild card, and the emerging market profit equation still a work in progress -- isn't the type of bet that a Toshiba has to make in buying into the sector.

"Saying the smart grid stocks are 'washed out' can only be done in terms of talk about the long-term," said Hannan.

-- Written by Eric Rosenbaum from New York.


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