Solar panel maker Evergreen Solar (NASDAQ:ESLR) looks to be on the verge of wiping out investors in its public stock. Is it too late to short its shares?

Before answering that question, it’s worth pointing out that Evergreen’s solar panels have a socially useful purpose — to turn sunshine into energy that can heat homes. Evergreen makes so-called wafers that are the primary components of photovoltaic (PV) cells that use silicon to convert sunlight into electricity.

And this industry has grown substantially in the last decade. In 2000, the solar industry accounted for 175 megawatts worth of energy represented by the solar panels it produced. By 2010, the industry had grown to 16,000 megawatts at a compound annual growth rate of 57%. 

While the solar cell business is useful to society, it is very tough to make the case that there’s profit in the silicon wafers.  After all, the intense price competition in this industry – abetted by competitors who use lower cost Chinese workers – makes it impossible for some companies to earn a profit.

And that lack of profitability ought to make it difficult to attract capital. But, in a twist of human irrationality that continues to amaze, people seem to be willing to part with cash in exchange for a chance to get a share of a money-losing, but gallant-sounding mission used to make the world a better place.

This comes to mind when remembering how Evergreen persuaded its home state of Massachusetts to use taxpayer funds to pay for a manufacturing plant in a shuttered military base in Devens.  The state wanted to foster so-called green manufacturing jobs, and in 2007 it gave Evergreen a $58 million tax incentive. This past March, Evergreen shuttered that plant, firing 800 workers, yielding a $377.5 million write-down, and shifting that manufacturing to China.

A quick glance at Evergreen’s recent first-quarter results  helps explain why the company canceled its May 13 conference call.  These results reveal shrinking revenue ($35.3 million, 60.4% below the previous quarter) and shipments (17.8 megawatts, down 62% from the previous quarter), a negative gross margin of 63% meaning its prices were way below its costs, falling prices (to $1.86 per watt down 2% from the quarter before), dwindling cash reserves ($31 million, down 49% in the quarter), and the decision to hire financial advisers due to insufficient cash.

In addition to persuading Massachusetts to fork over cash, Evergreen also got investors to buy $200 million worth of notes that were due to be repaid in 2013. In the fourth quarter of 2010, it tried to convince those investors to swap the notes for new ones due in 2020 – but only 23% of the investors went for the new deal. Evergreen canceled another offer for $165 million of a different series of bonds due in 2015 because less than the minimum of 30% of investors bought that deal by the Feb. 11 deadline.

Evergreen’s stock peaked at $17.22 in December 2007 and has since plunged 92% to $1.41. In a May 12 SEC filing, Evergreen said there is “substantial doubt” about its ability to “continue as a going concern” over the next 12 months, in part because it had “significant” cancellations for its products.

If you can manage to borrow its shares to sell them short, you will likely be able to profit as the sun sets on Evergreen Solar.

Peter Cohan has no financial interest in the securities mentioned.