Beware of the Solar Stocks as P/Es Skyrocket

With crude at record highs and natural gas prices soaring, alternative energy companies are hot. Add to that global warming and there is strong demand to finding alternative ways to fuel our lifestyle.

The solar stocks have been all the rage for the last year or so. Should you invest in them?

Today, SunPower Corp. (SPWR) announced first quarter earnings and beat the street by four cents a share. Revenue was also higher.

More importantly, the company guided higher on earnings forecasts for the second quarter and the year. From the AP:

For the full year, the company said it now expects 2008 profit between $2.10 and $2.20 per share on revenue of $1.3 billion to $1.38 billion. In January, SunPower predicted earnings between $2 and $2.10 per share.

Sounds good, right?

Except that the company trades at a sky-high P/E. YahooFinance and Marketwatch are both putting it around 900 but it’s less than that. It looks like it’s probably around 45 times earnings based on their new yearly guidance.

As we’ve learned from the dot-com boom (and bust), the company better have an incredible growth story to be trading with a P/E at that level.

The S&P 500 has a P/E of around 16. Solar stocks are probably around 40.

Unfortunately, many of the other solar stocks are the same as Sunpower. They’re all expensive.

First Solar (FSLR), one of the more popular solar investments, has a P/E of 145. JA Solar (JASO) has a P/E of 58. SolarFun (SOLF) has a P/E of 34.

It’s not that I dislike the solar industry. Don’t get me wrong.

But the sector is far too expensive. Investors are buying on the “hope” of the future- not the actual future.

Buy stocks based on today’s earnings not tomorrow’s what “might be.”

Yes, the solar companies are growing. Yes, they will be a part of the energy scene in the future.

Just don’t overpay for them.

Right now, the sector is way overvalued.

Beware.