Federal subsidies in the USA expire this year, and political wrangling over extending them is frightening investors, Hoopes says. If the price of oil fell below $60 a barrel, that may take the political pressure off Washington to bankroll alternative sources of energy such as solar, Hoopes says. If that happened, investors would probably flee the stocks faster.
For instance, when tax credits lapsed for the wind industry in 2000, 2002 and 2004, installations of wind equipment plunged 87%, Bachman says.
"The only way solar has demand is due to the subsidies," he says.
Despite the forces pushing solar stocks down this year, analysts agree there's money to be made by investors willing to wait out the short-term volatility.
For instance, while U.S. solar subsidies may be in question, the rest of the world is leading in solar anyway, Carboy says. The USA is only about 10% of the global market for solar, he says.
Germany, Spain, Greece and Portugal remain strongly committed to provide incentives for solar, Hoopes says. And there's huge room for growth. Germany, for instance, gets just 0.3% of its electricity supply from solar vs. 5% from wind and the rest from traditional sources, Hoopes says.
First Solar gets nearly all of its revenue from companies headquartered in Germany, and SunPower and Suntech get about half, according to company regulatory filings.
Certainly, the stocks aren't cheap. SunPower and Suntech trade for 36 times and 28 times 2008 earnings estimates, respectively, Thomson Financial toc says. That's well above the Standard & Poor's 500 index's 13.2 price-earnings ratio based on 2008 estimated earnings. If those two companies continue to grow 53% a year, as Carboy expects, earnings will soon make those valuations look reasonable.
Be prepared for sudden swings, though, whenever investors get nervous about paying so much for future growth. "If you're in it for the long haul, buy the heck out of SunPower and Suntech," he says.
Just remember that in many fast-growing emerging markets, there will be a few winners and many losers, Bachman says. "There will be a slew of Webvans and Pets.com," Bachman says, referring to two Internet companies that dissolved in the dot-com meltdown several years ago.
But there will also be winners, just as eBay ebay and Yahoo yhoo survived. "This is a hot market," he says.