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Solarfun Is All The Rage: Rallies Ahead of Wednesday Earnings

A confluence of factors has made a surge in Solarfun Power Holdings Co. (SOLF) shares possible; an overly high short position as a percentage of the publicly traded float, an upcoming earnings announcement following pretty spectacular results already reported elsewhere in the solar sector, and a continuation of the momentum trade. The trading activity and price movement really say it all; the stock is tacking on another 14% to $26.08 on heavy volume of 21.8 million shares with two hours left to go in the trading session. Yesterday’s record breaking volume of 22.8 million shares, which is quadruple the daily average, will surely be smashed. Despite the recent price appreciation, Solarfun still trades at a reasonable valuation of 26 times forward earnings considering that revenue is expected to grow 85.7% to $4.45 billion and earnings per share is poised to rise from $3.08 to $4.98 for the current year based on consensus estimates. Yet the stock has just begun to show some signs of weakening amid a late day selloff and with a gain of 80.1% since last Monday’s close of $14.94, one has to be mindful from a trading perspective the likelihood of some profit taking and a technical pullback, possibly to fill the gap at $23.19, ahead of Wednesday’s earnings report as shares of Solarfun Power have become overheated (pun intended).

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