Trade war intensified in August, which took a toll on the broader markets. Solar stocks, the bright spots on Wall Street this year, were largely positive while the S&P 500 fell approximately 2% so far this month. Solar microinverter makers Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) continued to rally and rose 11% and 28% respectively in August. Enphase Energy has crushed the markets this year, gaining 560% so far this year. Peer SolarEdge stock is up about 135% in this period.
Enphase Energy was a mere $500 million company at the start of the year. The company is currently valued at $3.8 billion. Investors are turning increasingly positive on solar inverter companies like Enphase and SolarEdge. These key technology providers to the panel makers offer brighter growth prospects in the coming years.
Trade war tensions dented solar stocks
Tariff disputes between the US and China reached new levels of apprehensions in August. In retaliation to increased tariffs, China let its currency fall to record lows. US solar stocks tumbled as a lower currency would make Chinese counterparts more attractive, ultimately increasing competition.
The biggest among solar companies by market cap, First Solar (FSLR) stock fell around 4% in August. Peer SunPower Corporation (SPWR) gained 13%. Invesco Solar ETF (TAN) gained around 4% in August. First Solar and SunPower collectively form almost 15% in TAN ETF. Read First Solar Stock Looks Strong Compared to Its Peers.
Sunnova Energy International (NOVA) stock had been quite volatile in the month. The stock fell close to $8 last week on weak Q2 numbers. The company’s loss widened to $50 million in the second quarter compared to a loss of $9.2 million in Q2 2018. Sunnova stock is currently trading 20% lower from an IPO price of $12.0 issued last month.
Sunrun loses big this month
Sunrun (RUN) stock was the biggest loser among solar stocks in August. The company lost more than 20% in the month. But the solar company is still sitting at a handsome gain of 50% so far this year. Notably, Sunrun stock looks weak based on its chart indicators. The stock has fallen below its both 50-day and 200-day moving average levels, which indicates a notable weakness. Breaking above levels of $15.5 might bring some optimism in the stock in the short term.
Sunrun stock was weak particularly after missing earnings expectations in Q2. Despite a strong revenue growth in the first half of the year, Sunrun failed to convert that into profits. Analysts expect strong earnings growth from the solar installer in the second half of the year.
In comparison, Enphase Energy reported record earnings in Q2, which has fueled the company’s stock lately. It also increased earnings guidance for the rest of the year. Peer SolarEdge Technologies, panel makers SunPower, and First Solar also raised earnings guidance for the second half of 2019.
Strong demand for solar to continue
Almost all the companies with solar stocks sounded optimistic for the second half of 2019 during Q2 earnings. The main reason behind it could be the strong demand. Solar Energy Industries Association increased US solar installation outlook from 14% last year to 25% earlier in 2019.
Sentiments were also bolstered by the fact that global solar installations will reach 114.5 gigawatts in 2019. That’s about 18% higher than last year, according to Wood Mackenzie Power & Renewables’ report.
Solar stocks’ valuation
Solar stocks seem to offer considerable growth potential even after a strong run so far this year. First Solar stock is trading 18x its forward earnings while SolarEdge is trading around 20x. Their significant expected earnings growth and reasonable valuation hints that they have a long way to go. Enphase Energy, the most rallied stock in the solar space is trading 36x its estimated earnings for the next few months.
Among the solar stocks discussed above, Sunrun stock offers a handsome upside potential of 48% from its current levels. Analysts have given Sunrun a mean price target of $22.4 for the next 12 months. Analysts expect a downside in Enphase Energy stock from its current price of $31.2. Northland Capital Equitable Finance raised its price target to $40.0 on August 26.