Solar stocks were rising 10% to 30% July 28 on news the Senate may pass a climate and energy bill.
In the first half hour of trading solar installer SunRun (NASDAQ:RUN) was the biggest winner, up 25%. Solar panel maker First Solar (NASDAQ:FSLR) was up 18%. Inverter makers SolarEdge Technologies (NASDAQ:SEDG) and Enphase Energy (NASDAQ:ENPH) were up just 5%. But those stocks were already up on the year.
The hope is that the bill, which aims to both reduce carbon use and boost America’s domestic energy supplies, will spur investment in American solar companies. Chinese companies have been dominating the panel market for a decade.
Deflation Hits U.S. Solar Panel Makers
American solar stocks have been beaten by deflation and China’s ability to withstand it. Prices have fallen in lockstep with costs. The costs for residential solar power are now estimated at 16 cents per kilowatt-hour, on commercial buildings at 11 cents per kwh, and at just six cents per kwh for utility-sized plants. The Energy Department hopes that can be cut in half this decade.
Growth and lower prices have not translated into prosperity for American solar panel makers. First Solar sales in 2021 were lower than in 2017. Its operating cash flow was just $237 million. Yet the market capitalization is $9.4 billion, with a price to earnings ratio of nearly 44.
Makers of inverters, which turn the DC power of panels into AC power for use on the electric grid, have fared better. SolarEdge sales this year should be twice those of 2018. Enphase should double its 2020 sales. Enphase has also been beating earnings estimates this year. But with a market cap of almost $36 billion you’re paying 194 times those earnings to own it.
What Happens Next for Solar Stocks?
The largest solar panel makers remain Chinese, with only First Solar cracking the top 10. There are little more than a dozen plants making panels in the U.S. today.
The hope is that innovations like Tesla (NASDAQ:TSLA) solar shingles and Solar Window’s (NASDAQ:WNDW) clear plastic window coverings, which integrate solar power into home construction, can move the needle in coming years. Barring subsidies, the inverter market will retain most of the American industry’s hopes.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
