Global renewable energy investments are accelerating at a stellar pace. The International Energy Agency estimates that renewable energy addition will swell by 107GW in 2023, which is the largest absolute increase ever. I expect positive industry tailwinds to sustain as governments globally are pushing for cleaner source of energy. It’s therefore a good time to consider some undervalued renewable energy stocks.
An important point to note is that solar energy will account for “two-thirds of this year’s projected increase in global renewable capacity.” With cost as an important factor, solar energy is likely to lead the race when it comes to renewable energy adoption. Of course, there are other attractive themes like hydrogen energy. This column therefore focuses on two solar energy stocks in addition to one stock from the hydrogen energy economy.
Let’s discuss the reasons to be bullish on these stocks that can be value creators.
Undervalued Renewable Energy Stocks: First Solar (FSLR)
First Solar (NASDAQ:FSLR) has remained sideways in the last 12 months. After an extended period of consolidation, FSLR stock is likely to breakout on the upside as valuations look attractive at a forward price-earnings ratio of 19.4.
As an overview, First Solar is a designer and manufacturer of photovoltaic solar energy solutions. The company sells products and services in markets that include the United States, Japan, France, Canada, India and Australia.
Among the positives, the company reported significant gross profit margin expansion in 3Q 2023. Furthermore, operating income was positive as $273 million as compared to operating losses in the prior year comparable period. First Solar has also increased the operating income guidance for 2023 in the range of $770 million to $870 million. With these financial positives, the stock seems undervalued.
I must add that the company’s production guidance looks impressive. The facility in India is expected to provide its first delivery by the end of the year. Furthermore, the facility in Ohio will also start deliveries neat year. This will help in accelerating growth.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) stock has plummeted by 75% in the last 12 months. Short interest in the stock remains significantly high at 26%. I believe that PLUG stock is oversold and a massive short-squeeze rally is on the cards.
There are some big investments being initiated to boost the global hydrogen economy. Even with positive industry tailwinds, PLUG stock has been depressed. The reason is the markets scepticism on fund raising and execution of big plans. If Plug Power can demonstrate ability on these fronts, the stock can surge by 10x or 20x from current levels in the next few years.
Further, the year was negative in terms of supply chain challenges for the company. Plug however believes that the “hydrogen supply challenge is a transitory issue.” Once this headwind wanes, it’s likely that growth will accelerate. The company’s target to clock $20 billion revenue by 2030 seems steep, but is not unrealistic considering the industry potential.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) stock has plunged by 70% in the last 12 months. The results have disappointed and the markets have punished the stock. However, at a forward price-earnings ratio of 20.6, the stock looks attractive. The negatives seem to be discounted and I would consider gradual accumulation.
For Q3 2023, the company’s revenue declined to $725.1 million coupled with gross margin compression. The company’s guidance for Q4 is also bleak. These factors are however baked-in the price.
A positive point to note is that the company has presence in 36 countries. However, Europe and United States accounted for almost 91% of total revenue. There is ample scope for growth in emerging markets in the next five years.
Further, I like the fact that SolarEdge is driven by innovation. The company has 538 awarded patents and 503 pending applications. With focus on residential and commercial segment, the addressable market is big for this innovation driven company. If you are looking for undervalued renewable energy stocks, start here.
On the date of publication, Faisal Humayun 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.
