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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