Why solar energy stocks are on the rise today

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What happened

Shares of solar energy stocks surged higher across the board today on fairly bullish industry earnings news. It hasn’t hurt that interest rates are also falling around the world, which tends to make solar power projects more economically attractive to developers.

SolarEdge Technologies (NASDAQ: SEDG) was one of the leaders today, increasing to 14%. JinkoSolar (NYSE: JKS) increased by 11.1% and Daqo New Energy (NYSE: DQ) jumped to 11.8%. Shares were up 10.8%, 9.8% and 9.5%, respectively, at 1:45 p.m. EDT.

Image source: Getty Images.

So what

It was not actually any of these companies that moved the solar market today, but rather Enphase Energy (NASDAQ: ENPH) to release its third quarter 2021 results. The company said revenue nearly doubled to $ 351.5 million and net income for the quarter was $ 21.8 million, or $ 0.15 per share .

Enphase management also said it has installed 65 MW of energy storage systems with 90 MW to 100 MW expected in the fourth quarter of 2021.

The first thing to take away from the results is that solar demand was strong, at least in the residential market. This should bode well for SolarEdge, provided the company does not lose market share to Enphase microinverters. Energy storage is another growth area for solar power in which SolarEdge is trying to compete, so Enphase’s growth could translate into SolarEdge as well.

JinkoSolar and Daqo New Energy are suppliers of solar panels and polysilicon, so they are upstream in the market from companies like Enphase. But they should see a similar demand profile, so high demand for one solar business will likely bode well for others. This is why these stocks are on the rise today.

Now what

The profit season is still long, but at the moment it looks like the demand for sunscreen products is strong. Enphase is expected to be an indicator in the residential market and if the demand for microinverters and energy storage is strong this should translate into growth for many companies serving the industry.

We also had no indication that the supply was too limited or that the margins were strongly impacted by higher costs. Management said the non-GAAP gross margin (which takes away a tariff advantage in 2020) was 40.8%, down slightly from 41% a year ago. We don’t know if a strong margin profile will continue for manufacturers or installers of solar panels, but it’s a small positive sign.

I would wait until more earnings reports were released before changing my investment thesis on solar companies. But early indications are that demand is strong, and that’s good news for solar stocks so far this earnings season.

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Travis Hoium has no position in the stocks mentioned. The Motley Fool recommends SolarEdge technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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