The solar industry has been in the spotlight since the start of 2020, thanks to growing concerns about climate change and the joint effort of countries around the world to reduce carbon emissions by going green. Biden’s infrastructure passed a landmark $1.2 trillion infrastructure spending bill earlier this year, which includes significant investments to boost the nation’s solar industry and help achieve zero carbon emissions. in electricity generation by 2035.
However, given soaring inflation and rising fuel prices, the Biden administration recently announced the release of a strategic oil reserve of one million barrels per day. This should keep gasoline prices at bay, leading to increased fuel consumption. Furthermore, given the various macroeconomic headwinds and a potential recession warning, the government should focus more on sustaining the economy rather than meeting its carbon reduction targets for now. .
Given that the solar industry is expected to remain under pressure for some time, overvalued stocks are likely to lose further momentum in the near term. Given these factors, we believe that fundamentally weak shares of SolarEdge Technologies, Inc. (SEDG), Sun Power Corporation (SPWR) and Sunnova Energy International Inc. (NOVA) are to be avoided.
SolarEdge Technologies, Inc. (SEDG)
SEDG in Hod Hasharon, Israel provides an inverter solution for a solar photovoltaic (PV) system. It offers power optimizers, inverters, communication devices, smart energy management solutions used in residential, commercial and small-scale solar installations, and cloud-based monitoring software. The Company operates through five segments: Solar; Energy Storage; e-Mobility; Critical power; and automation machinery.
On March 17, SEDG offered a secondary public offering of two million shares, with an allotment option to underwriters to purchase an additional 300,000 shares. This offer is expected to significantly dilute SEDG’s share capital, reducing shareholder returns and ROE.
In the fourth quarter of fiscal 2021, ended December 31, 2021, SEDG’s total operating expenses increased 24.6% year-over-year to $119.45 million. Of the society non-GAAP gross margin fell 2.2% from the prior year value to 30.3%.
SEDG is relatively overvalued compared to its peers. In terms of EV/Futures, SEDG is currently trading at 5.55x, which is 79.9% higher than the industry average of 3.09x. Its Price/Forward Sales multiple of 5.74 is 77.7% above the industry average of 3.23x. And its forward price-to-book ratio of 9.06 compares to the industry average of 4.76.
The stock price has declined slightly over the past month to close yesterday’s trading session at $308.
SEDG POWR Rankings fit into these gloomy prospects. The stock has an overall rating of D, which is equivalent to Sell in our proprietary rating system. POWR ratings rate stocks on 118 separate factors, each with its own weighting.
SEDG has a D rating for value and stability. In category F Solar industry, it is ranked #6 out of 19 stocks.
To view SEDG’s POWR ratings for Growth, Momentum, Quality and Sentiment, Click here.
Sun Power Corporation (SPWR)
SPWR in San Jose, California is a solar technology and energy services provider that offers solar power, storage and home energy solutions in the United States and Canada. It operates through four segments: Residential; Light commercial; Commercial; and industrial solutions. SPWR’s product portfolio includes Equinox, Helix, SunVault, OneRoof and InvisiMount residential mounting systems.
On April 2, the company laid off staff in San Jose due to the end of a research partnership. SPWR sold its commercial and industrial businesses in February for $250 million to TotalEnergies SE (TTE). This divestment should have an impact on the company’s revenues and profits in the short term.
SPWR’s total operating expenses increased 60.4% year-over-year to $82.11 million during its fiscal fourth quarter, which ended Jan. 2, 2022. SPWR’s gross profit fell 32.1% year over year to $51.05 million. The company’s net profit fell to $20.99 million, down 95% year-on-year. Its net loss per share attributable to shareholders was $0.11, down 94.7% from a year earlier.
SPWR trades at a premium to its peers. In terms of forward EV/EBITDA, SPWR is currently trading at 37.60x, 203.8% higher than the industry average of 12.38x. Its forward Price/Book multiple of 7.49 is 57.3% above the industry average of 4.76x. SPWR’s forward price to cash flow ratio of 37.39 compares to the industry average of 18.36.
In its fiscal first quarter (ending March 31, 2022), The Street expects SPWR’s EPS to decline 49% year-over-year. It’s no surprise that the SPWR has missed consensus EPS estimates in three of the past four quarters.
Shares of SPWR are down 25.2% over the past year, to close yesterday’s trading session at $21.36.
SPWR’s POWR ratings reflect its poor outlook. The company has an overall D rating, which is equivalent to Sell in our proprietary rating system.
SPWR has a D rating for stability and an F rating for value and sentiment. It is ranked No. 10 out of 19 stocks in the Solar industry.
To view additional POWR (Growth, Dynamics, and Quality) ratings for SPWR, Click here.
Sunnova Energy International Inc. (NOVA)
NOVA in Houston, Texas is a provider of residential solar energy and energy storage services. It offers operation and maintenance, monitoring, repair and replacement services, equipment upgrades and on-site power optimization for its customers. As of December 31, 2021, it operated a fleet of residential solar power systems with a generating capacity of approximately 1,140 megawatts serving more than 195,000 customers.
On February 1, NOVA expanded its partnership with Generac Power Systems, Inc. (GNRC) to offer energy storage units, home backup generators, microinverters and load managers for its consumers.
During its fourth fiscal quarter (ended December 31, 2021), NOVA’s total operating expenses increased 32.3% year-over-year to $74.08 million. The company’s net loss and net loss per share were $31.26 million and $0.13, respectively.
NOVA is relatively overvalued compared to its peers. In terms of EV/Futures Sales, it is currently trading at 17.25x, which is 270.3% higher than the industry average of 4.66x. Its forward EV/EBITDA multiple of 48.71 is 297% higher than the industry average of 12.27x. Its forward price-to-sales ratio of 6.99 compares to the industry average of 2.64.
Analysts expect NOVA’s negative $0.31 earnings per share to decline 15.3% year over year for the fiscal first quarter ended March 31, 2022. The company missed the consensus EPS estimates in three of the last four quarters.
NOVA stock is down 47.2% over the past six months.
NOVA’s POWR ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to a strong sell in our proprietary rating system. It has a D rating for growth and an F rating for value, stability and quality. It is ranked No. 17 out of 19 stocks in the solar industry.
Click here to see NOVA’s POWR ratings for sentiment and momentum.
Shares of SEDG were trading at $303.15 per share on Thursday afternoon, down $4.85 (-1.57%). Year-to-date, SEDG has gained 8.05%, versus a -7.25% rise in the benchmark S&P 500 over the same period.
About the Author: Shweta Kumari
Shweta’s deep interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make informed investment decisions. After…