Volatility persists for many companies in a range of sectors. The solar sector hasn’t been immune to this volatility, failing to see a recovery after its recent downturn. That’s despite strong long-term growth prospects.
Solar stocks have pulled back sharply from their 2021 highs, creating potential value opportunities for investors. As we move through August 2023, I believe these declines have left a few high-quality solar names looking quite undervalued at current levels.
Many solar companies operate solid businesses with years of growth still ahead as demand for renewable energy continues to expand globally. While challenges like supply chain disruptions have impacted near-term performance, these companies’ long-term outlooks remain bright. With valuations looking attractive relative to their potential, these solar stocks seem ready to outperform, as macroeconomic headwinds eventually subside.
Of course, risks exist around rising interest rates, commodity price fluctuations, and shifting renewable energy policies. However, for investors with a long-term horizon, the time could be right to start building positions in the most undervalued names in the solar space. Here are three solar stocks that stand out to me as compelling opportunities right now:
SolarEdge (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) has declined 50% from its 2021 highs, making the solar components company appear undervalued. SolarEdge maintains a leading position in optimized inverter systems and monitoring software. Not only does SolarEdge command well over 60% market share in module-level power optimizers, but it also provides the leading solar monitoring platform. As more modules connect to the grid, SolarEdge enables deeper visibility into performance.
With the U.S. residential solar market projected to grow at a 20% annual clip this decade, SolarEdge’s solutions position it perfectly to benefit. Yes, supply chain issues have impacted the solar industry near-term. But with the stock now trading at 19-times forward earnings, I’m convinced SEDG stock is a steal for long-term investors.
Wall Street analysts share my view, with the average price target implying an 80% upside for this stock.
Emeren Group (SOL)
Emeren Group (NYSE:SOL) is a company that few investors know about despite its integral role in solar projects. The company is a global leader in solar project development and operation, with local teams in more than 10 countries. Notably, Emeren operates in the fastest-growing solar markets. However, supply chain disruptions and the selloffs have hit financial results hard. This has left the stock languishing around $3.26, about 90% off its highs.
Admittedly, Emeren is a higher risk option than my other solar picks. But with shares trading at just 8.15-times forward earnings, I believe its upside potential far outweighs its risk. If Emeren can work through short-term logistics issues, I see significant room for growth.
The average Wall Street analyst believes there is 204.5% upside potential here. As solar demand accelerates globally, companies like Emeren that enable cost-efficient projects stand to win big. I plan to hold this speculative play for the long haul.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) has pulled back 59% after growing more than ten-fold in 2020-2022. But with shares now at 27-times forward earnings, I see an opportunity in this micro-inverter leader, despite the recent guidance disappointments.
Enphase’s highly efficient micro-inverters are rapidly gaining market share for residential solar installations. Its networked inverter system also enables remote monitoring and management. Enphase has built an ecosystem around its hardware, including energy storage and home energy management software. As solar grows, this integrated platform helps drive recurring revenue streams. Enphase estimates its serviceable market is $23 billion, leaving substantial room for growth at current valuations.
Beyond hardware, Enphase has built an intelligent software ecosystem and energy storage solutions. While microinverters drive growth today, its networked grid services provide recurring SaaS revenue streams. Enphase estimates its systems have helped avoid over 45 million metric tons of CO2 emissions globally. As more homeowners look to add storage and manage energy, Enphase is primed to benefit. Still, even with its weak recent guidance, execution risk exists, and it will require some patience before stellar results materialize.
The average Wall Street analyst puts the upside potential with Enphase at 46.3%.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
