Residential solar energy stocks are on fire right now and for good reason. According to the Solar Energy Industries Association, the amount of residential solar power installed has increased from 667 megawatts in 2010 to 21,001 MW midway through 2021. And with rising fossil fuel prices, residential solar momentum is expected to continue. .
Investors looking to get into this industry have some great stocks to choose from and three of our contributors think SunPower (SPWR -5.34% ), Enphase Energy (ENPH -5.26% ), and SolarEdge Technologies (SEDG -3.88% ) have what it takes to beat the market.
Image source: Getty Images.
The return of solar stock
Travis Hoium (SunPower): For most of the past decade, SunPower has tried to be a leader in everything from manufacturing solar power to installing giant solar farms. But he couldn’t do everything right and has now sold most of his side business for the historically top-performing business, which is residential solar power.
SunPower has the tools to quote, install, monitor and control residential solar installations and has a long history of working with reseller partners to expand its presence. But in October, the company caused a stir by purchasing Blue Raven Solar, a leading residential solar installer. Instead of just working with partners, SunPower will now employ sales and installation teams in parts of the country. The vertical integration strategy has been successful for companies like Sunrun and could also be for SunPower.
What, in my opinion, separates SunPower from the competition is its exclusive agreement with Maxéon, formerly its manufacturing arm, to buy high-yield solar panels and its ability to offer different financing options, while companies like Sunrun focus entirely on solar power purchase contracts and leases. This flexibility will give customers more choice, which will be important as solar installations begin to include more options for energy storage and electric vehicle charging. The tailwinds are behind residential solar and I want to own the business with the direct customer relationship, and that’s SunPower.
Provide the growing solar trend
Howard Smith (Enphase Energy): Solar power has been the fastest growing new generation of electricity source in the country over the past decade. To achieve a predominantly carbon-free electricity sector by 2035, that pace will need to accelerate significantly further over the next decade, according to a US Department of Energy report from August 2021.
Enphase Energy provides microinverters and other technologies for residential and commercial solar systems. Microinverters convert direct current from the solar panel to alternating current used in the home or business. Enphase’s business was booming before the disruption caused by the pandemic, and the growth rate has resumed so far in 2021. The table below shows the company’s microinverter shipments and revenue partners for the last four semesters.
|
Metric |
S1 2021 | S2 2020 | H1 2020 | S2 2019 |
|---|---|---|---|---|
| Microinverter shipments | 4.82 million | 3.73 million | 3.10 million | 3.91 million |
| Returned | $ 617.8 million | $ 443.3 million | $ 331.1 million | $ 390.1 million |
Data source: Enphase Energy financial reports.
The company also recently announced that its third-quarter sales were up 11% sequentially from the second quarter, and it expected fourth-quarter revenue to grow another 13.7% in the middle of its range. These trends should therefore continue.
The main catalyst for Enphase’s growth is the secular global trend of increasing renewable energy production. And passing an infrastructure bill in the United States would only help propel that growth. Whether or not these additional expenses materialize, Enphase also has prospects beyond the US market. The company recently established itself in Brazil and Italy and has just launched the battery storage component of its system in Belgium. Encharge battery storage systems were already available to customers in Germany and North America.
For investors, this growth comes at a price. Its prospective price-to-earnings ratio is 83, according to YCharts data. But this has declined from the start of 2021 both due to the performance of the company and the depreciation of the share price. Enphase shares are down more than 17% from their January highs, making it now a good time for investors to take a closer look at owning some of the expected growth in the solar energy.
The future has never been brighter for SolarEdge
Daniel Foelber (SolarEdge): Led by residential solar companies, solar stocks have seen an absolute tear in the past month.
As Howard mentioned, Enphase led the load higher, but SolarEdge, its main competitor, could follow closely when it releases its third quarter results on Tuesday.
After a turbulent 2020 that saw lower high and low growth rates, interest rate risks and headwinds related to COVID-19, SolarEdge turned the tide in 2021 and shows no signs of slowing down.
The company achieved record second quarter 2021 revenue, impressive profitability and a gross profit margin of 32.5%, which is in line with its typical range of 30% to 35%.
For the third quarter, management expects revenue of between $ 520 million and $ 540 million, which would be a new all-time high, a 10% increase from the second-quarter record and a staggering increase of 57% compared to the third quarter of 2020. SolarEdge expects to record an adjusted gross margin. between 32% and 34%.
SolarEdge’s revenue growth rate is impressive, but arguably most important is the company’s ability to maintain a high gross margin even as it grows in revenue rapidly. This feature bodes well for SolarEdge to become progressively more profitable, as the residential and commercial solar markets grow.
Even as SolarEdge outperforms Wall Street with worse-than-expected third quarter numbers, the company has a strong management team and an industry-leading position that should make it a long-term winner for years to come.
Residential solar is in growth mode
These companies are clearly leaders in the residential solar industry and they are resuming the growth of their activities after an uncertain year 2020. growth potential of new technologies such as energy storage and recharging of electric vehicles. With everything going on in solar, this is a great place to invest today.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
