Gaiam, Inc.
(NDAQ: GAIA) announced the spin off of its Real Goods Solar (NDAQ:
RSOL) unit last week in a move that could substantially boost
shareholder value. Real Goods Solar installs residential solar energy
systems in California and claims roughly 2/3 of the residential solar
market. A market that values solar will surely find value in this pure
play that promises to net a substantial amount of cash for Gaiam and
its shareholders. So, should you look at buying into this hot new issue?
Initial public offerings in hot sectors like this generally spike
early in their trading, which can make it difficult for investors to
obtain a good price. Luckily, this particular spin off scenario gives
investors the ability to obtain shares in the spin off company by
purchasing shares in the parent before the separation. Essentially,
shareholders are given the ability to get on the ground floor of one of
the largest pure-play players in one of the fastest growing industries
in the market.
Gaiam itself is also a strong, diversified company focusing on
“green” products. Real Goods Solar will take over the company’s solar
operations while the retail division will continue to focus on selling
products like yoga supplies, exercise equipment, eco friendly home
supplies and much more. Combined, the units are quickly growing with
earnings rising more than 40% last year and a projected 50% in 2008.
Currently, Gaiam commands a steep 75x multiple, but strong growth may
justify that with a PEG ratio that is within the norm.
In the end, Gaiam is a great company and this spin off should only
unlock additional value for shareholders. This is one of the few
opportunities to get on the ground floor of the solar boom, but
investors should carefully watch the terms of the spin off in case
pricing goes beyond a tax free distribution. Combined, these factors
make GAIA a stock that is definitely worth watching over the next few
months!
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