Because governments across the world have been taking steps to transition their countries to a renewable energy driven future, it’s no surprise that solar energy stocks have been at the forefront of the revolution given declining storage costs. However, the industry has been witnessing a sell-off lately as investors ponder whether the Federal Reserve will increase benchmark interest rates. Given solar projects’ large upfront costs, the industry is very dependent on debt financing. So, rising interest rates usually negatively affect solar companies. Furthermore, the solar industry is facing supply chain constraints and witnessing higher shipping costs.

Investors’ pessimism over the industry’s near-term prospects is evident in  the Invesco Solar ETF’s (TAN) 16.6% loss over the past month compared to SPDR S&P 500 ETF Trust’s (SPY) 3.2% gains.

Amid this environment, we think it is wise to avoid solar stocks Enphase Energy, Inc. (ENPH) and First Solar, Inc. (FSLR). These companies reported weak financials in their last quarterly releases and analysts expect their financials to weaken  further.

Enphase Energy, Inc. (ENPH)

Along with its subsidiaries, ENPH designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry internationally. It offers semiconductor-based microinverters, AC battery storage systems, envoy communications gateways, enlighten cloud-based monitoring services, and other related products and services.

On April 19, ENPH announced that Transdev, a multinational transit operator, selected its microinverters for the first public transport depot in Australia to feature a fully solar-powered bus. However, this is still in the initial stage and it’s too soon to understand if the bus  will be widely accepted in Australia.

ENPH’s operating income decreased 22.4% sequentially to $61.39 million in the first quarter, ended March 31. Its net income for the quarter came in at $31.70 million, down 56.6% sequentially. The company’s EPS declined 56% from its year-ago value to $0.22.

The stock has lost 36.9% over the past three months and closed yesterday’s trading session at $121.94. Also,  it is currently trading 46.8% below its $229.04 all-time high, which it hit on February 10.

ENPH’s poor prospects are apparent in its POWR Ratings also. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a D rating for Value, Sentiment and Stability.

Click here to see the additional POWR ratings for ENPH (Momentum, Growth and Quality). It is ranked #3 of 20 stocks in the F-rated Solar industry.

First Solar, Inc. (FSLR)

FSLR provides photovoltaic solar energy solutions internationally. It operates through two segments: modules and systems. The company designs, manufactures and sells PV solar modules with  thin-film semiconductor technology. Its  customers include utilities, independent power producers, commercial and industrial companies., .

The company’s cost of sales increased more than 40% year-over-year to $618.61 million for its fiscal year 2021 first quarter, ended March 31. Its cash, cash equivalents, restricted cash, and marketable securities came in at $1.80 billion, largely unchanged from the prior quarter. The increase, which was due primarily to the proceeds from the sale of its North American O&M business was partially offset by an increase in accounts receivable related to its U.S. project development and Sun Streams 2, 4, and 5 sales.

Analysts expect FSLR’s EPS to be $0.83 for the quarter ending September 30,  which represents a 42.8% year-over-year decrease. The company’s revenue is expected to decrease 3.9% year-over-year to $2.82 billion in its fiscal year 2022. The stock has lost 24.4% over the past three months and closed yesterday’s trading session at $73.63.

FSLR’s POWR Ratings are consistent with this bleak outlook. The stock has a D rating for Stability. Click here to see FSLR’s ratings for Value, Momentum, Quality, Sentiment and Growth. It is ranked #1 in the F-rated Solar industry.

ENPH shares were trading at $122.51 per share on Friday afternoon, up $0.57 (+0.47%). Year-to-date, ENPH has declined -30.18%, versus a 13.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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