Array Technologies (NASDAQ:ARRY) is an interesting recent IPO. The company, which makes ground-mounting systems for solar panels, offers big opportunity. As the pivot to solar and other clean energy sources accelerates, it is clear its growth train is fully in motion.
Yet, while it is on my watch list, it’s still too early to buy. How so? After rallying 77% above its $22-per-share IPO price, it’s a bit too hot to touch.
Sure, with triple-digit top-line growth, there is good reason why Wall Street is chomping at the bit. Yet, there’s also good reason why shares could pull back from recent prices.
But, on a pullback, consider this a screaming buy. Given the multiple positive factors at play, there’s no denying the opportunity. Potential policy changes and corporate America’s pivot toward green energy are just two developments that support the long-term solar megatrend.
So, at what price is it reasonable to get into this opportunity? I don’t see shares crashing back to the IPO price. But, a moderate pullback may be on the horizon. And, once this pullback happens, consider it time to pounce.
Array Technologies Stock and Solar Megatrends
What is the appeal of this particular solar play? With its technology crucial for the viability of solar, Array stands to win big in the coming years. Its flagship product, solar trackers, help panels maintain optimal orientation to the sun.
Given how the vast majority of solar projects incorporate trackers, what is the result? Year-over-year growth in the triple digits. Sales in the first six months of 2020 were $552.6 million. That’s more than double ($225.4 million) the top-line numbers from the prior year’s period.
But, that is just the start. As the pivot to solar accelerates, above-average top- and bottom-line growth is in the cards. In this decade alone, “old school” power plants representing 12% of capacity will be taken offline. And what will replace this capacity? Clean alternatives like solar.
Corporate America is driving much of this pivot toward clean energy. Both for image purposes, as well as for economic reasons. Add in the potential for increased federal support of solar initiatives, and it is clear the solar megatrend is not going away anytime soon.
Yet, even with so many factors in its favor, it is still too early to dive into Array Technologies stock. With investors knowing its prospects full well, the stock has popped to too rich of a price. But, while it is not as compelling an opportunity at current prices, consider a major pullback high time to buy.
Why You Should Wait for a Pullback
The long-term prospects for Array look strong. But, I am taking my time before jumping into shares. Why? Firstly, after the post-IPO pop, shares are a bit richly priced right now. Granted, the massive growth potential warrants a premium valuation. But, with investor enthusiasm bidding up this stock right out of the gate, there is a good chance shares cool off in the coming months.
Also, the upcoming U.S. presidential election adds a layer of uncertainty. The possibility of major changes to U.S. clean energy policy is helping to drive this stock higher. But, while shares may trade at even higher prices depending on who wins on Nov. 3, there is a chance shares sell off in the aftermath.
The IPO lock-up period is another concern. Once the lock-up period ends, insiders will be able to sell shares on the open market. And, while it is six months until the lock-up period ends, investors may start to sell in anticipation of “smart money” insiders cashing out.
With these factors in mind, there are good reasons to wait on Array Technologies stock. That is not to say there isn’t opportunity here. Far from it, given the solid prospects for solar. But, with the possibility of shares pulling back from today’s prices, a “wait and see approach” makes sense.
Put ARRY Stock on Your Watchlist
There is much to be excited about with this recent IPO. The solar megatrend is not going away anytime soon. That’s a given. And, with this company’s flagship product helping to make solar projects more efficient, and more viable, runway remains massive.
But, with many factors driving the stock higher in the near term, and the possibility of a selloff in the coming months, now’s not the time to jump into shares. I’m not buying right now, but Array Technologies stock is definitely on my watch list. And it should be on yours as well.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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