Real Goods Solar (RSOL) looks like an interesting investment at the current price ($3.14). The company primarily operates as a residential and commercial solar energy integrator in California and Colorado. The stock basically has no following whatsoever, despite the fact that the company is growing nicely, is finally profitable, has a healthy balance sheet (about $12 million in cash and no debt), is operating in an industry with fantastic growth potential, and finally from a valuation perspective sports an EV/Sales of less than 1 (despite 40% revenue growth last quarter).

In addition, while many investors chase the solar panel manufacturers, and especially the Chinese ones with misleading accounting, the truth from my perspective is that the integrators ultimately have a better business long-term. As prices for panels drops over time, the integrators will obviously benefit dramatically from higher gross margins, particularly since the demand side of solar will increase, while integration fees will either stay the same or go up (the prices of panels will not effect integration fees, since integration is basically a time/people business, and with time everyone’s time becomes more valuable). Basically it seems certain that the opposite will be true for solar panel manufacturers, unless there is alot of consolidation.

Interestingly, one can see the above situation playing out in recent earnings reports. Compare the solar panel manufacturers’s reports to this from RSOL:

“Gross profit increased to $5.4 million, or 28.1% of net revenue, for the fourth quarter of 2009 from $3.2 million, or 23.5% of net revenue, in the comparable period last year. The increase in gross profit percentage primarily reflects improved installation practices as well as declines in module prices over the last year.”

Ultimately, companies, like RSOL, with strong growth potential, improving profitability, and a low valuation catch the attention of investors and the prices of the stocks are bid up rather quickly.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in RSOL. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise