Solar stocks are taking a massive hit today following lowered guidance and a bleak warning from SolarEdge (NASDAQ:SEDG). These factors are bringing down related stocks such as Enphase Energy (NASDAQ:ENPH) and Sunrun (NASDAQ:RUN). The solar equipment company warned that its third-quarter revenue, gross margins and operating income would be below analyst expectations, citing cancellations and a lack of demand.
SolarEdge now expects third-quarter revenue between $720 and $730 million, down significantly from the previous estimate of between $880 and $920 million. That represents a decline of about 20% from the midpoint of both estimates. Furthermore, the company forecasts operating income between $12 and $31 million, which was lowered from between $115 and $135 million. That implies a devastating drop of about 83% from the midpoints.
Will Solar Stocks Be the Next Big Short Squeeze?
“During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors,” said CEO Zvi Lando. “We attribute these cancellations and pushouts to higher than expected inventory in the channels and slower than expected installation rates. In particular, installation rates for the third quarter were much slower at the end of the summer and in September where traditionally there is a rise in installation rates.”
As of Sept. 29, SEDG stock carried a short interest of 12.18%. Generally, a short interest above 10% is considered high, while a short interest above 20% is considered very high. In comparison, ENPH carried a short interest of 8.82%, while RUN’s short interest tallied in at 23.01%. It could be plausible that short interest for these three stocks has fallen since Sept. 29, given the recent declines, which could influence short sellers to take gains by covering their positions.
At the same time, SolarEdge’s warning could influence an influx of new short sellers who believe that solar stocks could fall even more. While short interest is only updated twice per month, a stock’s cost-to-borrow (CTB) fee is updated several times a day. The CTB fee represents the annual that short sellers must pay to borrow stock. As of today, SolarEdge’s CTB fee was just 0.29%, which has remained mostly unchanged from its fee during the past week. That indicates that short sellers aren’t rushing to short the stock, at least for now.
On the date of publication, Eddie Pan did not hold (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.
