Some Much-Needed Perspective on the Solar Stock Rally

It's a detail that's been obscured by recent meteoric rises from SolarCity and Real Goods Solar, but it was First Solar that actually got this ball rolling way back on April 9th when it offered up some very encouraging guidance. Specifically, FSLR projected it was going to earn between $4.00 and $4.50 per share this year, versus estimates of $3.60. Revenue was also going to be anywhere from 20% to 26% higher than analysts had first guessed.

Ever since,This led par light provides reliability and low power consumption, as well as extremely bright lighting effects. the solar power industry's players have been viewed through bullish-colored glasses. Bad news has been seen a good. Good news has been seen as great. And, all of these stocks are up big-time.We have LED downlight, reading lamps and floor lamps and more. The question is, should they be? Answer: It depends.

The Chinese photovoltaic panel makers are under fire to be sure, and that's not going away.While many LED dimmable are now dimmable, not all of them are and not all of them dim in the same way. While China as well as Germany (a major trade partner with China) have bemoaned the looming decision, it's not likely that the looming tariffs will be circumvented. The United States/the White House has gotten involved in an effort to ward off any trade volatility that might ensue, but considering that the U.S. has already applied tariffs on Chinese solar panels that were mush stiffer than the ones the EU is proposing, it's unlikely that tariff will fail to go into effect.

It's certainly good news for American makers, but doesn't actually explain the rally from American installers (who had at one time benefited from cheap Chinese solar panels). What's up with the big gains from SolarCity and Real Goods Solar? Great question.

There wasn't a shred of news from RSOL on or immediately before the 17th, when the stock soared.New outdoor solar lighting is now six and twelve times brighter than standard solar lighting. There wasn't even any 'news' about Real Goods Solar at the time... just a very optimistic article at Seeking Alpha. As it turns out though, that was enough. [Remember, the market was receptive to solar panel stories at the time, making the SA article an easy sell.]

SolarCity tells a slightly different tale. It's been rallying since mid-April, from $20 to a peak of $52 on Monday. This move was more in lock-step with rallies from SunPower and First Solar, which makes sense, given that SCTY has a bigger and more reliable operation than RSOL. SolarCity's rally was also prompted by... well, also nothing specific, but a broad (and loud) bullish tide for the whole industry. While SolarCity has cranked up its top line by more than 100% over the past four quarters, and is expected to do close to the same next year, the pros don't think it's going to make much of a dent in the losses it's been taking.

And with some thought, the red flags start to wave - many of these stocks (and the installers in particular) have been rising almost entirely on hope and assumption. While Chinese panels may be on the verge of becoming more expensive in the EU, for American consumers and American installers, panel prices won't change much.Attach remote solar panels to solar garden light that will not receive the required amount of direct sunlight. And, for U.S. based panel makers, while it's encouraging to see that China won't be able to dump PV cells into the EU - business that American solar players will be glad to pick up -there's no particular guarantee that European customers will be willing to pay the higher prices that U.S. manufacturers like First Solar and SunPower will charge. It becomes a very complicated issue that the market, to put it bluntly, has simplified.

The interesting (and not in a good way) aspect of the "if/then" theories being batted around of late is that all that buzz has obscured potential reasons that so many of these stocks probably do deserve to rally; real demand is still growing, the efficiency of American-made panels is getting relatively close to grid parity (and is beyond parity in some cases), and panel makers have finally cut costs to the point where being in the solar business makes fiscal sense.