Despite a decade of impressive growth, the solar industry is currently facing volatility due to intense competition, global supply chain issues, lower solar installations, and unfavorable government proposals. Therefore, it could be wise to avoid solar stocks SolarEdge Technologies, Inc. (SEDG), Sunrun Inc. (RUN), Sunnova Energy International Inc. (NOVA), and Beam Global (BEEM) until further notice.
Over the past decade, the solar industry has enjoyed an outstanding annual growth of 33%, owing to favorable government policies, declining costs, and rising demand for clean energy. However, the industry is now experiencing volatility that is rippling across the solar supply chain and is pressuring manufacturing giants.
The solar industry experienced price hikes across all market segments for six quarters in a row due to shipping limitations and other supply chain obstacles caused by the global pandemic and trade uncertainty. Solar installations in the United States declined 16% year-over-year in 2022.
The volatility in the solar industry is best exemplified by the fluctuations in polysilicon prices, which dropped by over 40% in a few weeks starting in December and then rebounded by over 50% in less than a month. BOCI Research Ltd. asserts that the fluctuation is due to “extreme inter-segment competition for profits.”
Against the backdrop, it could be wise to steer clear of fundamentally weak solar stocks SEDG, RUN, NOVA, and BEEM.
SolarEdge Technologies, Inc. (SEDG)
Headquartered in Herzliya, Israel, SEDG designs, develops, and sells Direct Current (DC) optimized inverter systems for solar photovoltaic installations. Its segments include Solar and All Other. The company sells inverters, power optimizers, communication devices, smart energy management solutions, and more.
SEDG’s trailing-12-month gross profit margin of 27.16% is 44.8% lower than the 49.19% industry average. Its trailing-12-month EBITDA margin of 10.69% is 4.8% lower than the industry average of 11.22%. Moreover, the stock’s trailing-12-month cash from operations of $31.28 million is 44.2% lower than the industry average of $56.01 million.
For the fiscal fourth quarter that ended December 31, 2022, SEDG's non-GAAP gross margin marginally reduced from the prior year’s period to 30.2%, and its non-GAAP operating expense increased 26.5% year-over-year to $119.01 million.
Also, the company’s net income and EPS declined 49.1% and 51.4% from the prior-year period to $20.83 million and $0.36, respectively.
SEDG missed its consensus estimates in three of four trailing quarters, which is disappointing. The stock declined 1.1% intraday to close the last trading session at $324.93.
SEDG’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, translating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Value and a D for Stability. Within the F-rated Solar industry, it is ranked #13 of 18 stocks.
Click here to see the other ratings of SEDG for Momentum, Sentiment, Quality, and Growth.
Sunrun Inc. (RUN)
RUN designs, develops, installs, sells, and maintains home solar energy systems in the United States. It also supplies solar energy systems and products, such as panels and racking, and solar leads. The business uses a direct-to-consumer technique to market and sell its goods.
The stock’s trailing-12-month gross profit margin of 12.87% is 55.6% lower than the 28.95% industry average. Likewise, its trailing-12-month EBITDA margin of negative 7.43% compares to the industry average of 13.21%. Moreover, the stock’s trailing-12-month asset turnover ratio of 0.13x is 83.7% lower than the industry average of 0.79x.
RUN’s total operating expenses increased 24.1% year-over-year to $798.34 million during the fiscal fourth quarter that ended December 31, 2022. The company’s loss before income taxes widened by 11.1% from the prior-year period to $325.62 million. In addition, RUN’s net loss worsened by 2% year-over-year to $327.91 million.
As of December 31, 2022, the company’s total liabilities stood at $11.09 billion, compared to $8.91 billion as of December 31, 2021.
The company is expected to report a loss per share of $0.11 for the ongoing fiscal year ending December 2023. The stock has plummeted 36.5% over the past six months, closing the last trading session at $24.25.
RUN’s POWR Ratings reflect its weak fundamentals. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Quality and a D for Value, Stability, and Sentiment. RUN is ranked #16 among 18 stocks in the Solar industry.
Beyond the POWR Ratings stated above, we have also given RUN grades for Growth and Momentum. Get all RUN ratings here.
Sunnova Energy International Inc. (NOVA)
NOVA provides energy as a service in the United States. Along with delivering electricity, it also offers services for operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization, and diagnostics.
NOVA’s trailing-12-month EBITDA margin of 9.07% is 71.8% lower than the 32.13% industry average. Its trailing-12-month net income margin of negative 28.98% compares to the 11.12% industry average. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.08x is 65.8% lower than the industry average of 0.24x.
NOVA’s total operating expenses increased 186.8% year-over-year to $212.44 million in the fiscal fourth quarter that ended December 31, 2022. Its operating loss widened 85.8% from the year-ago value to $16.85 million. Furthermore, the company’s net loss and loss per share worsened by 98.3% and 38.5% year-over-year to $61.99 million and $0.18, respectively.
Analysts expect NOVA to report a loss per share of $0.67 for the current fiscal year (ending December 2023). Moreover, the company is expected to report a loss per share of $0.42 in the next fiscal year. Furthermore, NOVA missed its consensus EPS estimates in three of four trailing quarters.
Over the past six months, the stock has fallen 34.8% to close the last trading session at $18.18.
NOVA’s POWR Ratings reflect its poor prospects. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It also has an F grade for Value, Stability, and Quality and a D for Growth. Within the same industry, it is ranked #17 out of 18 stocks.
To access NOVA’s rating for Momentum and Sentiment, click here.
Beam Global (BEEM)
BEEM is a cleantech company that engineers and markets renewable energy devices for EV charging infrastructure, outdoor media and branding, and energy security technologies. Furthermore, the company is developing EV-Standard, a lamp standard, an EV charging system, and an emergency power product to provide curbside charging.
The stock’s trailing-12-month gross profit margin and EBITDA margin of negative 7.45% and negative 53.17% compare to the industry averages of 28.95% and 13.21%, respectively. Also, BEEM’s trailing-12-month asset turnover ratio of 0.48x is 40% lower than the 0.79x industry average.
For the third quarter of fiscal 2022 that ended September 30, BEEM’s cost of revenues rose 211.8% year-over-year to $6.95 million, while the company’s gross loss widened 63% year-over-year to $339,000. In addition, the company’s net loss and net loss per share worsened by 302.2% and 252.6% from the prior year’s quarter to $6.79 million and $0.67, respectively.
For the fiscal year that ended December 2022, analysts expect BEEM to report a loss per share of $1.62. Furthermore, the company is expected to report a loss per share of $1.08 for the ongoing fiscal year (ending December 2023). Also, the company missed its consensus EPS estimates in all four trailing quarters, which is disappointing.
The stock has plunged 6.2% over the past month to close the last trading session at $16.18.
It is no surprise that the stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
BEEM has an F grade for Value, Sentiment, and Quality. It ranks last among 18 stocks within the Solar industry.
In addition to the POWR Ratings highlighted, you can see BEEM’s ratings for Stability, Growth, and Momentum here.
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SEDG shares were trading at $327.12 per share on Thursday morning, up $2.19 (+0.67%). Year-to-date, SEDG has gained 15.48%, versus a 4.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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