Blowing Green Bubbles: Solar Skyrocketing

MSN poses the question: could there be a green bubble brewing? I'd say so:

"Indeed, some green-fund managers now see the share prices of many companies tied to environmental sustainability as, well, unsustainable. 'Now you've got to worry about valuation and some of the speculative bubbles that are building,' Robinson says."

I fully agree that there are plenty of green stocks that are vastly overpriced. In particular, solar energy stocks have been on a tear:

"These funds have performed well, of course, because many of their growth-stock holdings have fared even better. Solar energy bellwether SunPower, for example, was up 158% in the past 12 months, as of July 9."

Sunpower (SPWR) is trading at 182 times earnings. That's definitely high, but it's not the best example. MSN failed to notice, or intentionally omitted that one. In my opinion, the best example of an overpriced company thus far is First Solar, Inc (FSLR). (Thanks to the individual who gave me the tip!) Forget being up 158 percent in the past twelve months. In just eight months, First Solar is up 364 percent. You read that right. The stock closed trading at $24.74 on November 17, 2006; it closed trading on July 10 at $114.89. The current P/E ratio is 491. That, my friends, is a classic example of a bubble.

Obviously, solar energy has a bright future. But does it warrant such overvaluation? Maybe yes, maybe no. The danger lies in the complete unpredictability of which direction it will go. I highly recommend watching the future trajectory, perhaps jumping into a short sell after it's observed to be heading down. It's way too volatile for me to assert a stance at this point.