Many perceive solar energy as a panacea for deriving power from so-called “clean energy” sources. Although solar does not consume fossil fuels or create emissions, higher production costs made it less viable, and by extension, solar stocks less worthy of investment in past decades.
However, improvements in both battery storage and solar technology have made this form of energy more economical. Over the last few years, several companies have emerged to bring solar energy to the market. Many have devoted large swaths of land to solar panels. Others have again begun to place panels on the roofs of residential homes.
Like all stocks in an investment sector, some remain better buys than others. These four equities provide a compelling opportunity for long-term profits in this high-growth sector:
Solar Stocks to Buy: Solaredge Technologies (SEDG)
Solaredge Technologies (NASDAQ:SEDG) stands out among solar stocks. The company sells power optimizers, inverters and monitoring platforms in the solar space. This allows SEDG to specialize in residential, while also serving the commercial and small-utility markets. They sell directly to installers, wholesalers and other firms involved in construction.
SEDG stock offers two distinct advantages. First, it poses fewer geopolitical risks than most other stocks. With its base of operations in Israel, it will likely not face the tariffs that counterparts in China and other countries in the crosshairs of the Trump Administration face.
Second, SEDG stock is hard to beat among solar stocks. Revenue rose by an average of 46.1%-per-year over the last five years. The company also turned profitable in 2015 and continues to grow these profits at double-digit rates. Analysts predict that rate of growth will continue at least through the next year.
The recent performance of the stock also bodes well. The stock initially struggled following its IPO in the spring of 2015. However, SEDG stock established a bottom of $11.35-per-share in 2016. Since then, the stock has seen a steady move higher. Today, it trades in the $56-per-share range. Despite this five-fold surge, SEDG stock supports a forward price-to-earnings (P/E) ratio of about 17.1. This should leave plenty of room for growth in the months and years to come.
Solar Stocks to Buy: Sunrun Inc (RUN)
Sunrun (NASDAQ:RUN) specializes in home solar panels and storage equipment. The San Francisco-based company claims itself as the largest solar company in the United States that dedicates itself to residential.
RUN works to bring solar directly to homes with little upfront cost and at a lower overall cost than traditional providers of electricity. They design, install and maintain the panels on the homeowner’s roof and offer what they describe as “predictable pricing” for a minimum of 20 years. With this arrangement, Sunrun provides a compelling value proposition among solar stocks. Also, since the company operates only in the U.S., it has little exposure to the trade issues that plague other solar companies.
Despite years of struggles, SUN stock appears to have gained Wall Street’s attention. After an IPO in August 2015, the stock quickly fell into the single digits. It spent most of the time since mired in a trading range. However, since February, the stock has risen from a low of just above $5-per-share in February to almost $14.50-per-share today.
Despite the run (pun intended), RUN stock trades at a reasonable valuation. Forecasts for profits in 2018 vary widely. However, even the lowest projections place the forward P/E at a level of 16.6. The company also saw about 40% average revenue growth per year over the last three years. Even if revenue growth slows down in future years, profits should continue to increase significantly.
Solar Stocks to Buy: Vivint Solar (VSLR)
Vivint Solar (NASDAQ:VSLR) tops the list as one of the more consumer-focused solar plays. Based in Lehi, Utah, it generates its solar power through a proprietary process. It places residences under long-term contracts and installs solar systems at people’s respective homes. They operate in 21 states, mostly in the southwestern part of the country and along the east coast.
Among solar stocks, VSLR has stood out for its growth. The company doubled revenue in previous years. Although that growth has slowed, revenue growth should remain at double-digit levels for the foreseeable future. It also continually supports low multiples. As a small, fast-growing company, it does not earn a profit. However, its price-to-sales (P/S) ratio stands at just above 2.3. Also, it also trades at just over 2.1 times its book value.
The company remains in a start-up mode with a market cap just under $650 million. Profitability also remains years off. However, after sinking below $2.50 following an IPO at $16-per-share in 2014, the stock has slowly recovered. It currently trades above $5.50-per-share. If it can keep growing, VSLR stock should rise with it. Investors need to keep the speculative nature of the company in mind. However, if one feels comfortable with the risks, VSLR stock could become rewarding in the years to come.
Solar Stocks to Buy: JinkoSolar (JKS)
Admittedly, JinkoSolar (NYSE:JKS) stands as one of the riskier solar stocks. Even though it incorporated in the Cayman Islands, their actual base of operations resides in Shanghai. As such, it finds itself in the middle of the U.S.-China trade war. Consequently, the JKS stock price has fallen as a result.
But here’s the thing.
Even though the United States will remain an important market for decades to come, 95% of the world’s population resides outside of the U.S. Moreover, most economists believe that the economic center of gravity continues to shift across the Pacific to Asia. For these reasons, I think investors should consider JKS stock at a discount no matter how any trade dispute plays out.
Such a discount has likely materialized. Since last September, JKS stock has fallen from a high of $30.90-per-share all the way to the $14-per-share range. Profit forecasts vary widely due to this trade war. However, we know that revenue grew by an average of 40.7%-per-year over the last five years. Moreover, despite variations, all predictions would take the forward P/E of JKS stock no higher than 10. The current decline has brought the stock’s current P/E to about 10.8.
Anything can happen in the current trade war. Those with a low appetite for risk should probably look to other stocks. However, for those who believe that this dispute will remain a short-term phenomenon, JKS holds the potential to become one of the higher-performing solar stocks.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow him on Twitter at @HealyWriting.