Time to Short Solar Stocks

By: ispeculatornew
Date posted: 01.06.2008 (11:22 pm) | Write a Comment  (2 Comments)

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SPWR – SunPower Corporation (Nasdaq) – (Closing Price on Friday 1/4/08 – $126.12) 

Stocks related to solar power made a tremendous run in 2007 but they are currently grossly overpriced and overdue for a pullback. The insiders of most of these companies have been dumping shares like crazy which is never a good sign. Also, the market is expected to have a turbulent year so I think now is a good time to short some of these companies.

My solar pick to short is SunPower Corporation. SunPower Corporation has shown strong growth over the last year but it currently has at a trailing PE ratio of 631 (that is ridiculously high). For growing companies a trailing PE is less important than the forward PE but SunPower’s forward PE is also astronomical (126 based on the high range of their forecast of GAAP earnings between $0.85 and $1.00 in 2008).

While investors have been buying, the insiders of SunPower Corporation have been dumping a huge amount of shares. Insider selling is never a good sign and the amount of selling that has taken place at SunPower should cause a lot of concern.

I guess there weren’t any lessons learned in the tech bubble because the analysts that cover SunPower haven’t downgraded SunPower but have actually been pumping this stock for the last few months. Maybe they will find the valuation of SunPower too expensive when it hits a forward PE of 200. If you think analysts are looking out for the interest of the small investor then SunPower clearly shows you are mistaken.

I think the ridiculous valuation, heavy insider selling, and unease in the stock market are going to bode ill for SunPower (as well as the other solar stocks). I am going to give a short recommendation at Friday’s closing price.

Disclosure: I have no position in SPWR.

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  1. Comment by The Prince — January 17, 2008 @ 1:35 pm

    I agree that SunPower is overvalued and insider selling is always a sign of a good short. Sunpower doesn’t have the lowest cost manufacturing for for solar.

    I think there are some solar stocks that have been knocked off their highs which now look attractive. Some of these like LDK and WFR have reasonable trailing PEs under 30 and return on equity percentages that are impressive for such young growing companies. I also like JASO but it is more richly valued and much smaller than the 2 aforementioned stocks. My recommendation is build a basket of these three stocks weighting the three names by how cheap their valuations are.

  2. […] you followed my initial recommendation to short Sunpower at $126.12 you are sitting on a 45% gain in less than three weeks. I think most […]

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