The $1.75 trillion Build Back Better Bill was passed in the House of Representatives in November, which includes significant funding and tax credits for the renewable energy and electric vehicle industries. This, combined with the growing demand for residential and industrial solar power units, has raised investor optimism in the solar industry and incentivized companies to develop efficient product portfolios. The global solar energy market is expected to grow at a 20% CAGR to reach $200 billion by 2026.

However, Senator Joe Manchin III has recently shown his opposition to the social spending and climate change bill (designed to eliminate coal and natural gas), sharing concerns over certain provisions of the massive tax and spending bill and how it may exacerbate soaring inflation in the country. Manchin’s vote is crucial in passing the climate change bill in the 50-50 Senate. Besides, the ongoing supply chain constraints and rising prices are expected to act as major headwinds for solar companies.

Given this backdrop, fundamentally weak solar stocks Enphase Energy, Inc. (ENPH), SolarEdge Technologies, Inc. (SEDG), First Solar, Inc. (FSLR), and Sunrun Inc. (RUN) are best avoided now.

Enphase Energy, Inc. (ENPH)

ENPH provides energy management solutions for the solar photovoltaic industry worldwide. The company manufactures and sells semiconductor-based microinverters, combined with its proprietary networking and software technologies, to provide energy monitoring and control services. It serves solar distributors, OEMs, strategic partners, and homeowners, as well as the do-it-yourself market.

On December 16, 2021, ENPH increased deployments of Enphase Energy Systems, powered by IQ Microinverters and IQ Batteries, as utility power shut-offs continue to threaten the state of Southern California. As the demand for high-quality, safe, and reliable energy solutions rises, ENPH’s Enphase IQ batteries equipped with Enphase Power Start technology, and the Enphase App accommodating over-the-air software upgrades, are expected to witness high sales in the upcoming months.

As of September 30, 2021, the company had $885.55 million in cash and cash equivalents. Over the past month, the stock has lost 25.8% and closed Friday’s trading session at $189.11.

In terms of forward EV/Sales, ENPH is currently trading at 18.37x, 353.6% higher than the 4.05x industry average. In terms of forward Price/Sales, ENPH is currently trading at 18.63x, 365.2% higher than the industry average of 4x.

ENPH’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ENPH has a D grade for Growth, Stability, and Value. To see additional POWR Ratings for ENPH’s Momentum, Sentiment, and Quality, click here.

Of the 19 stocks in the F-rated Solar industry, ENPH is ranked #5.

SolarEdge Technologies, Inc. (SEDG)

SEDG offers direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. The company also provides power optimizers, communication devices, smart energy management solutions, and a cloud-based monitoring platform for residential, commercial, and small utility-scale solar installations. Also, it offers pre-sales support, ongoing training, technical support, and after-installation services.

On October 20, 2021, SEDG announced the commercial availability of the SolarEdge Energy Bank residential battery and SolarEdge Energy Hub inverter models in North America. Providing faster installation and better management and monitoring of solar energy production, consumption, and backup storage in real-time, SEDG expects to witness high demand for these two new SolarEdge Home solutions in the coming months.

As of September 30, 2021, the company had $526.59 million in cash and cash equivalents. The stock has lost 20.9% over the past month and ended Friday’s trading session at $288.85. SEDG’s 7.47x forward EV/Sales is 84.5% higher than the 4.05x industry average. In terms of forward Price/Sales, SEDG is currently trading at 7.72x, 92.7% higher than the industry average of 4x.

SEDG’s POWR Ratings are consistent with this bleak outlook. SEDG has a D grade for Value and Sentiment. In addition to the POWR Rating grades I’ve highlighted, one can see SEDG’s ratings for Growth, Quality, Stability, and Momentum, here. The stock is ranked #7 in the same industry.

First Solar, Inc. (FSLR)

FSLR provides photovoltaic (PV) solar energy solutions internationally. The company operates in two segments ─ Modules and Systems. It sells PV solar modules with thin-film semiconductor technology and PV solar power systems and provides operations and maintenance (O&M) services. It serves utilities, independent power producers, commercial and industrial companies, and other system owners.

On November 22, 2021, British multinational oil and gas company BP plc (BP) and its Lightsource bp subsidiary, specialized in the development and management of solar energy projects, placed multi-year orders for up to 5.4 gigawatts (GW) combined of FSLR’s advanced, ultra-low carbon thin-film photovoltaic (PV) solar modules. Under the agreement, FSLR has firm orders for 1.55GWDC of modules in 2023, 1.3GWDC in 2024, and 1.55GWDC in 2025. Being the largest framework agreement received, FSLR is looking forward to supporting the companies’ solar development pipelines in the U.S. and developing a long-term partnership with both companies.

For its fiscal third quarter ended September 30, 2021, FSLR’s net sales decreased 36.7% year-over-year to $583.50 million. The company’s gross profit came in at $124.58 million, down 57.5% from the prior-year period. Its operating income came in at $5087 million, representing a 75.4% year-over-year decline. While its net income decreased 70.8% year-over-year to $45.20 million, its EPS decreased 71% to $0.42. The company had $1.37 billion in cash and cash equivalents as of September 30, 2021.

Analysts expect the company’s EPS to decline 81.1% year-over-year to $0.37 in the next quarter ending March 31, 2022. The consensus revenue estimate of $640.65 million for the next quarter represents a 20.3% decline from the prior-year period. FSLR has lost 10.4% over the past month and closed Friday’s trading session at $93.16.

In terms of non-GAAP forward PEG, FSLR is currently trading at 3.21x, 96.8% higher than the 1.63x industry average. In terms of trailing-12-month Price/Cash Flow, FSLR is currently trading at 25.44x, 11.8% higher than the industry average of 22.75x.

FSLR’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. It has an F grade for Growth and a D grade for Stability. Click here to see the additional ratings for FSLR (Value, Sentiment, Quality, and Momentum). FSLR is ranked #8 in the same industry.

Sunrun Inc. (RUN)

RUN is a home solar, battery storage, and energy services company that designs, develops, installs, sells, owns, and maintains residential solar energy systems. The company markets and sells its products through a direct-to-consumer approach across online, retail, digital media, canvassing, field marketing, and referral channels, as well as its partner network.

On October 29, 2021, RUN expanded its program with SPAN, a piece of energy equipment and solutions provider, to accelerate the transition away from fossil fuels and help customers electrify their homes and vehicles. Through the program, RUN will include SPAN home electrical panels as part of its home solar and battery offerings in select markets to drastically reduce installation hurdles when adopting on-site generation and other all-electric appliances.

For its fiscal third quarter, ended September 30, 2021, RUN’s loss from operations came in at $137.93 million, representing a 121.8% year-over-year decline. The company’s net loss increased 182.6% year-over-year to $241.33 million. Its EPS came in at $0.11 for the quarter, down 60.7% from the prior-year period. The company had $717.59 million in cash as of September 30, 2021.

Analysts expect RUN’s EPS to remain negative in the next quarter ending March 31, 2022. The stock has lost 37.9% over the past month and ended Friday’s trading session at $34.23.

RUN’s 9.09x forward EV/Sales is 362.8% higher than the 1.96x industry average. In terms of forward Price/Sales, RUN is currently trading at 4.48x, 183.6% higher than the industry average of 1.58x.

It’s no surprise that RUN has an overall F grade, which equates to Strong Sell in our POWR Ratings system. RUN has an F grade for Value, Quality, and Stability, and a D grade for Sentiment. Click here to see additional POWR Ratings for RUN’s Momentum and Growth. The stock is ranked #17 in the same industry.

ENPH shares were trading at $180.20 per share on Monday afternoon, down $8.91 (-4.71%). Year-to-date, ENPH has gained 2.70%, versus a 22.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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