Clearly the wind is at the back of alternative energy shares. With electricity prices rising, crude oil soaring and the threat of global warming a near daily headline, the climate is right for companies in the solar business. And why not? Solar energy is inexhaustible, pollution free and helps create local energy independence.
Congress and state governments have become believers; a bill passed by the House this August requires electric utilities to increase the percentage of electricity they produce from renewable resources to 15% by 2020 from 2.75% in 2010. Solar is expected to be a big beneficiary.
In August 2006, California signed into law the "Million Roofs Solar Bill" with the objective of having one million California homes heated and lighted by solar within a decade. By offering economic incentives for installation, the bill aims to increase the use of solar power 30-fold and cut the cost of solar power to consumers in half. By 2011, builders must also make solar panels as accessible of an option for new home buyers as if they were high-end countertops.
With this type of legislative backdrop, the future for solar companies is bright. One of the likely beneficiaries is Ascent Solar Technologies, Inc. (Nasdaq: ASTI).
Ascent was spun-off from ITN Energy Systems in July 2004 and had its IPO in July 2006. ITN, which was founded in 1994 by Dr. Mohar Mistra, a former research whiz at defense contractor Martin Marietta, was created to commercialize innovative technology. Ascent is ITN's forth spin-off.
Through a proprietary process, Ascent is able to place a razor-thin coating of "CIGS" (copper-indium-gallium-diselinde) onto a plastic substratum. This material can be manufactured into light-weight rolls. In contrast to older technology, which is based on expensive silicon and placed on relatively inflexible metal, Ascent's large rolls allow for direct installation into building materials.
Ascent's manufacturing process reduces the number of solar modules necessary to create a roof. Wires, cable, junction boxes and conduits necessary with other products are significantly lessened. CIGS can convert sun to energy at an efficiency rate of up to 19.5%, while the efficiency of silicon peaks at about 12%. Since the solar technology can be directly integrated into building products, the cost of solar panel installation can be dramatically lowered.
These innovations potentially give Ascent an important competitive advantage in conventional applications such as on residential roofs. They also make its product well-suited for use in spacecraft and high-altitude aircraft. That fact has been recognized by several grants from the U.S. Air Research Laboratory, which has had a relationship with ITN since 1995 and recently funded Ascent with a research grant to the tune of $749,000.
Brian Blackman, Ascent's head of Investor Relations, told SmallCapInvestor.com the importance of military business will grow after 2011, when Ascent has significant production capacity.
This fall Ascent will take its technology into pilot production when a 1.5 megawatt [MW] plant comes on stream. The first of four 25 MW manufacturing facilities is planned for 2009. Ascent recently raised $21.6 million to fund construction.
This week Ascent teams up with Norway-based Hydro (NYSE: NHY), the second-largest provider of building systems in the world, to introduce its prototype solar systems at Batimat in Paris, the world’s largest building exhibition. Hydro has a 23% stake in Ascent, with an option to raise its position to 35%. That relationship not only gives Ascent a ready-made market and channel of distribution, but also some potentially deep pockets if future funds are needed for expansion.
While Ascent appears to have enormous potential, one must decide whether it makes sense to buy the stock now. Clearly, Ascent is richly valued from a fundamental perspective. The two analysts who follow the stock project the company to have only $2.47 million in revenue in 2008. These analysts also estimate that the company will lose $0.65 in 2007 and $0.39 in 2008 when pilot production comes on stream. It will be several years before Ascent is profitable. With an astronomical price-to-sales ratio of 398, the company clearly trades on its potential, not its current results.
Aside from valuation, there are more general risks. If peace were to break out in the Middle East, or a severe recession were to hit, crude oil prices could fall sharply. That would severely damage the momentum in solar stocks, especially in the short-term. Big players in a variety of industries are also eyeing the solar space. Energy giants like BP (NYSE: BP) and Shell (NYSE: RDS.A)already have entered solar. General Electric Company (NYSE: GE) acquired the assets of a bankrupt solar equipment company AstroPower to gain a foothold as well.
Because of the high fundamental valuation, the insights of technical analysis can be helpful in making a decision about the stock. ASTI is currently in an extremely strong uptrend. It is well above its rising 40-week moving average, a signature of a strong bullish move; currently, the moving average is at $9.31. The stock also should have important support near $11.30, a level which held Ascent in check between April and September.
Traders might want to wait for a pullback to near the $12 level before entering a position. The danger, of course, is that pullback may never come. On Friday ASTI broke through $20 on volume of nearly 886,000 shares, compared with an average three-month daily volume of about 568,000 shares. The 52-week high is $20.54, established on Oct. 19.
Ascent Solar is clearly not a stock for the faint of heart. However, the company has the potential to reward both the investor and the short-term trader—in short, Ascent (ASTI) could provide a ground floor opportunity for your portfolio to go through the roof.