Solar correction may be nearing bottom
by Mark Henwood
Since its peak on December 27, 2007 the solar index has dropped a massive 37% .
To shed some light on whether this correction is sufficient to wring any excess out of valuations I took a look at the PEG ratio for the index. Assuming margins remain fairly constant for the companies in 2008, I used sales growth forecasts as a proxy for EPS growth. On December 12 the PEG Ratio using current earnings and sales growth was 1.35. After the correction in the index and assuming sales forecasts haven’t changed much, the current PEG Ratio is .93. Granted the ratio is just a rule of thumb for valuation, and that values of around one for growth companies are generally considered “fair value”, it looks like the correction in solar is at or nearing the bottom.