Until now, I have said very little about alternative energy stocks. Let me make it clear; it’s not that I don’t believe in the desirability or potential of renewable energy sources. Population growth and increasing demand for energy make it essential that the World’s reliance on fossil fuels comes to an end fairly soon.
It’s just that everybody who looks rationally at evidence and science knows and understands that and, because of that, value is hard to find in the sector. The conversion to alternative energy will come one day, but that day is unlikely to be next month. The stocks of many alternative energy companies, however, are sometimes priced as if that day were coming next week. In short, value is hard to find.
Value is a tricky thing to define. Just because something is cheap, that doesn’t mean it represents value. There is an old saying among London forex traders; “You can’t eat value”. The point is that it doesn’t matter how much value you perceive in something, if you buy it and the price falls you still lose money. I understand that, but when looking for opportunities in any market, the ratio of the price to earnings (P/E), especially in comparison to other companies, is one of the few metrics that really count.
Companies in the solar energy business have baffled many on that basis for several years. Multiples in the broader market have recovered since the recession. The average forward P/E…