Companies operating in the residential solar energy space have been on an absolute tear in 2021. A report from the Solar Energy Industries Association states the installed capacity of residential solar has risen to over 21,000 megawatts at the end of Q2 of 2021, up from just 667 megawatts in 2020.

Given the significant uptick in fossil fuel prices in the past year, demand for residential solar should gain momentum in the near term, making stocks such as SunPower (SPWR) and Sunnova (NOVA) top bets for investors.

The global shift towards clean energy solutions will also result in lower prices over time and will be a massive tailwind for SunPower and Sunnova. So, let’s see which solar stock is a better buy at current prices.

The bull case for SunPower

In Q3 of 2021, SunPower revenue rose to $323.6 million, a rise of 17.8% year over year while it reported a net loss of $6.5 million compared to its year-ago profit of $0.06 per share of $9.8 million. Wall Street forecast sales of $329 million and earnings of $0.06 per share in Q3 for SunPower.

The company installed 92 megawatts in the residential business, up from 68 megawatts in the year-ago period. This allowed it to increase residential sales to $260 million from $171 million in Q3 of 2020.

SunPower’s recent acquisition of Blue Raven Solar should allow it to grow volume and revenue at a rapid pace in the upcoming quarters. It continues to focus on the residential solar business which is estimated to report adjusted EBITDA between $96 million and $114 million this year. The company also expects volume to rise by 35% year over year in 2022.

Valued at a market cap of $4.3 billion, analysts expect SunPower to increase sales from $1.12 billion in 2020 to $1.63 billion in 2022. Its bottom-line is also forecast to improve from a loss of $0.07 per share in 2020 to earnings of $0.46 per share in 2022.

While SunPower stock is up almost 500% in the last decade, it’s trading 54% below record highs, allowing investors to buy the dip.

The bull case for Sunnova Energy

In Q3 of 2021, Sunnova Energy’s sales rose by 37.3% year over year to $68.9 million. 

Comparatively, its net loss narrowed to $27.5 million or $0.25 per share from a loss of $64.2 million in the year-ago period.

Sunnova added 14,300 customers in Q3 increasing its total base to 176,900 customers. In 2021, the company forecasts to add between 55,000 and 58,000 customers and between 83,000 and 87,000 customers in 2022.

Sunnova also expects adjusted EBITDA between $80 million and $85 million in 2021 and between $117 million and $137 million in 2022.

Sunnova also announced a partnership with electric vehicle charging equipment company ChargePoint (CHPT). The two companies will look to integrate residential solar energy storage with EV chargers.

Sunnova went public back in 2019 and has more than tripled in market cap, valuing it at $3.70 billion. But, similar to SunPower, Sunnova is also down 39% below record highs.

Sunnova is forecast to increase sales from $161 million in 2020 to $345 million in 2022. Its loss per share is also expected to narrow from $2.87 per share to $0.57 per share in this period.

The verdict

We can see that Sunnova is growing at a rapid pace but is also trading at a much higher valuation, making the stock extremely vulnerable in a sell-off. I believe SunPower’s lower valuation and consistent profitability make it a better buy right now.

SPWR shares were trading at $23.54 per share on Thursday afternoon, down $1.40 (-5.61%). Year-to-date, SPWR has declined -8.19%, versus a 26.59% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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