Currently, the top solar stocks seem unstoppable. The stocks rose more than 3% last week. Solar stocks are trading at their respective multiyear highs. SunPower (SPWR) rose almost 12%, Sunrun (RUN) rose ~8%, and First Solar (FSLR) rose 1.8% last week. Increasing demand for solar panels and somewhat satisfactory output from the trade war truce maintained the optimism in solar stocks last week.
The solar sector has been one of the top performing sectors in 2019. SunPower stock stands tall with more than a 140% gain YTD (year-to-date). SunPower generates a large portion of its total revenues from the residential segment. The residential segment is expected to be a growth driver for the company going forward. First Solar stock has risen more than 57% during the same period.
Strong demand to continue
The Solar Energy Industries Association and Wood Mackenzie expect solar installations to grow 25% in 2019 compared to 2018. Previously, the group expected 14% growth in 2019. The solar panel installation in the first quarter was 10% higher than the same period in 2018. Falling costs, increasing corporate investments, and states’ push for renewable energy have boosted solar panel installations in the US in 2019. A similar trend might continue in the second quarter, which would bode well for solar companies’ earnings. The companies will likely start reporting their second-quarter results around the end of July, which could act as an important cue for solar stocks going forward.
The top solar stocks (TAN) are trading at high valuations due to their recent rally. SunPower is trading at more than 170x its estimated sales for the next 12 months. First Solar and Sunrun’s valuation multiples are ~45x their forward sales.
Most of the solar stocks are trading deep in the overbought zone. SunPower’s RSI (relative strength index) was close to 88 on Friday—its most overbought level since November 2017. First Solar’s RSI was 73, while Sunrun’s RSI was 81 at the closing last week. An RSI above 70 indicates that the stock is trading in the “overbought” zone, while an RSI below 30 shows that the stock is oversold. RSI levels at extremes suggest a looming reversal in the stock’s direction. Solar stocks at large are trading above their respective simple moving average levels, which indicates strength.