Although Wal-Mart is not widely recognized as a leader in environmental issues, the discount retailer's profits had a big hand in creating what has become the major force in the solar energy space. With nearly $11 billion in public value, Tempe, Ariz.-based First Solar is worth at least five times as much as its competitors. It's the only alternative energy company in the Standard & Poor's 500 Index. For investors, it represents one of the few ways to invest in a young industry through an established U.S. company with a strong financial backbone.

Jack Robinson, who first bought the company's stock for Winslow Green Growth Fund about three years ago, calls First Solar "the largest, most profitable, and most technologically advanced solar energy company in the world. It has lots of cash and a balance sheet that's stronger than any company in the industry. If you were only going to invest in one solar company this would be the one."

While the story behind the company is unique, the rise and fall of its stock, as well as a future framed by both glowing promise and frustrating roadblocks, reflects larger trends in an evolving industry.

The association between the retailing giant and the solar powerhouse began in 1999, when Michael Ahearn was an attorney specializing in start-ups. A graduate of Arizona State University and a long-time resident of the state, Ahearn, then in his early 40s, had few ties to Silicon Valley. But he knew enough to recognize a promising technology in the lower-cost production methods pioneered by inventor and entrepreneur Harold McMaster.

In 1999, Ahearn formed venture capital firm True North Partners with John Walton, son of Wal-Mart founder Sam Walton. The firm purchased McMaster's company, and Ahearn became its CEO in 2000. The first few years were difficult and by 2002, the company had burned through its initial $45 million investment and was struggling alongside other solar start-ups trying to stay afloat. As other venture capitalists cut off financing or closed shop, Walton poured even more money into First Solar. Six years and $150 million in expenditures later, the first plant opened and production ramped up quickly after an initial public offering in 2006.

Walton, who died in a private plane crash in 2005 at the age of 58, never got to see the company go public. He also missed the stock's astounding rise in 2007, when it spiked nearly 800% as alternative energy fever hit the market and the company crushed its competition with its rock-bottom pricing. By the beginning of 2008, it had reached a high of over $300 and traded at a triple-digit price-earnings ratio. At the time, the company's $20 billion market value was more than twice that of General Motors.

The stock market crash in 2008 quickly pulled the plug on alternative energy stocks. First Solar shares fell 48% that year, and remained relatively flat in 2009 as concerns mounted over competitors and waning government incentives in Europe, its major market. In early 2010, Ahearn raised eyebrows by selling 40% of his shares in the company for $142 million. In a report issued soon after the sale, Hapoalim Securities analyst Gordon L. Johnson cited the event as "a clear signal that he sees headwinds." (Ahearn declined to comment on the sale or to be interviewed for this story.)  Today, First Solar's public value stands at around half its peak level.

Industry In Transition

For investors, the upside of the drubbing for First Solar, and for solar stocks in general, is that they are a long way from the exorbitant valuations of a couple of years ago. With a recent price-earnings ratio in the mid-teens, the stock is priced well below what one might expect of a company in the forefront of an industry that is experiencing growing pains, but is nonetheless growing.  According to the International Energy Agency, demand in China, the United States and other countries is steadily rising, and solar will provide almost one-fourth of the world's electricity by 2050. In some places, solar power could be a formidable competitor with traditional energy sources by 2020.

At this point, though, investors seem more fixed on short-term problems for the industry than long-term prospects of individual companies. An increased number of solar companies entering the market over the last few years and an oversupply of panels have many worried about a continuing decline in product prices and shrinking industry profitability. Germany, a leading user of solar energy and a country where First Solar generates much of its business, recently announced a cutback in government subsidies to promote solar power. Other European countries are likely to do the same. As government subsidies wane, a declining euro has eaten into sales and profits for companies that sell to the European market.