I knew American markets had been very kind to alternative energy companies. Thanks largely to the prospect of rapidly increasing ethanol subsidies and ethanol additive mandates for gasoline, American ethanol companies have soared in value. Not far behind are Archer Daniels Midland and a coterie of smaller Big Agribusiness firms.
Over the past few months, however, I have seen an utter deluge of Chinese solar company IPO listings on various world markets, from the SSE to the Hang Seng to the Nasdaq. Trina Solar. Solarfun. (Who calls their company that?) Jetion Holdings. Suntech. Rene Sola. China Sunergy. And so on.
The deluge of solar offerings was all the more remarkable considering that China’s air quality is far too smoggy for solar power to have a prayer at efficiency, perhaps because Chinese have not shown a scintilla of prior concern for their environment. Over a total of three months in China, I’m pretty sure I never saw a single solar panel. And even if green is the new black in the United States, there’s no way solar energy is catching fire fast enough to mint as many Chinese billionaires as the Chinese solar sector has.
Suntech, which has one minted billionaire (Shi Zhengrong, worth a cool $2 billion or so) under its belt so far, is the most well-regarded Chinese solar company, with earnings of approximately $105 million … and a market capitalization just shy of $6 billion. And Suntech’s P/E ratio of 55 is tame by the sector’s standards.
Trina Solar, for example, has a market capitalization of $1.72 billion, a P/E of 80, and earnings of approximately $22 million. Yingli Green Energy, whose June IPO received the indulgence of Goldman Sachs, has a P/E of 283. Yes, that’s correct: a company with under $4 million in earnings ($8.3m net income) equals a market capitalization of almost $1.2 billion! (At least they are doing better than Evergreen Solar, which has negative earnings, negative cash flow, and a market capitalization of $1 billion. It has been in business for seven years.)
Chinese solar companies are emblematic of Chinese equities’ obscenely high valuations; Chinese depositors’ willingness to take their chances in a casinolike stock market due to unknown, but apparently high negative real interest rates; and an infatuation with everything “green” or “renewable” that has, quite simply, gone insane.
Furthermore, given the apparent failure of Live Earth to arouse any enthusiasm, there may be a “green bubble” in terms of policy expectations as well as prices of equities associated with green energy. Even if there isn’t, Chinese solar companies constitute one subsector that holds little promise and much peril for virtually anybody who is not a professional short-seller.
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