How Do I Choose the Best Solar IPO?

Solar energy involves harnessing power from sunlight and converting that power into electricity and heat. Technology behind solar companies continues to evolve, and as it improves, solar stocks move more into the mainstream. To invest in the best solar initial public offering (IPO), it requires research. Renewable energy stocks, including solar companies, perform especially well when there is some type of impetus, such as government spending, to propel the industry further.

Investors must be willing to take on some risk when investing in a solar IPO. While there may be a number of different investment opportunities to choose from, not every stock is a winning proposition. Technology involved in propelling solar products forward, such as solar panels and solar cells, can be expensive, which has a tendency to slow down the growth of the industry around the world. Until the costs involved become increasingly manageable, the growth potential of solar stocks may be slowed. When selecting a solar IPO, there are certain features that an investor should look for.

Profitability is a key factor when selecting an investment, including a solar IPO. Renewable energy stocks are not all profitable yet, but by reading financial documents available with a regulatory agency in a region, an investor can gain a sense of what to expect. If there is not any profitability yet, there should be a clear road map outlined with details on how the stock company plans to achieve profits. Government incentives, such as tax credits to businesses and residences for distributing or using renewable energy, could help the profitability picture and drive the value of solar stocks higher.

Companies that list shares on a major stock exchange, such as the New York Stock Exchange Euronext in the U.S. or the London Stock Exchange in the United Kingdom, must meet certain listing requirements in order to sell shares there. Many solar stocks are small and, as a result, do not meet those demands. Investors might instead find these stocks listed in the over-the-counter (OTC) market, which is not highly regulated. Companies are not required to make the same disclosures in the OTC market, and investors should recognize the risk involved there.

Some energy companies take a hybrid approach to renewable energy. Both traditional energy resources, including fossil fuels such as oil and natural gas, and alternative energy, may be part of the business model. Investors may be able to find a solar IPO in a business that is not only devoted to renewable energy but also incorporates an element of traditional power. A hybrid approach diversifies the revenue stream and could be advantageous for a solar IPO.