Clean energy stocks have outperformed in 2020. Companies such as SolarEdge Technologies, Inc. (SEDG) and First Solar, Inc. (FSLR) are leaders in clean energy, as their photovoltaic solar modules are being deployed for power generation for both commercial and residential buildings. With major economies pledging to go carbon neutral over the next couple of decades, these companies are expected to witness uninterrupted growth once the pandemic disruption ceases.
FSLR has already begun capitalizing on the changing trends by entering into strategic partnerships across the world. SEDG, on other hand, aims to dominate the US market initially.
SEDG gained 1312.1% over the past five years, while FSLR returned 55.6% over the same period. In terms of year-to-date performance as well, SEDG is the clear winner with 171.3% gains versus FSLR’s 51.3% returns. However, FSLR gained 92.7% over the past six months, compared to SEDG’s 88% returns over the same period.
But which stock is a better buy now? Let’s find out.
SEDG raised $550 million through senior notes offering in September, which is expected to fund its business operations and expansion plans. The company launched a new energy hub inverter with prism technology in June, which can charge smart energy devices up to 200A.
On October 21st, FSLR partnered with Vistra Corp to supply its photovoltaic solar modules across energy projects in Texas. The series 6 photovoltaic module is the world’s first PV product to be included in the Electronic products Environmental Assessment Tool (EPEAT) category.
The company announced its commitment to power 100% of its global photovoltaic solar manufacturing operations renewable energy by 2028. It plans to transition its facilities located in the United States to carbon-free electricity by 2026. It launched the first known 141 MW utility-scale solar facility providing ancillary grid services commercially in Chile.
FSLR also branched out to the European markets this year. FSLR’s photovoltaic solar modules have been used to power the largest urban solar photovoltaic power plant in Europe, Labarde Solar Power plant. The company has also powered six recent projects being developed by Vista Corporation.
Recent Financial Results
SEDG’s revenues rose 2% sequentially to $338.10 million in the third quarter ended September 2020. This can be attributed to a slight increase in solar business revenues to $312.50 million. Non-GAAP gross margin increased 110 basis points sequentially to 33.5%, while non-GAAP operating income improved 7% from the prior quarter to $50 million. Non-GAAP EPS grew 24.7% sequentially to $1.21.
FSLR’s net sales grew 44.4% year-over-year to $927.57 million in the third quarter ended September 2020. Gross profit rose 113.2% from the prior quarter to $293.02 million, while net income increased 320% sequentially to $155.04 million. EPS rose 134.3% sequentially to $1.45.
Past and Expected Financial Performance
SEDG’s revenue and EBITDA increased at CAGRs of 42.1%and 42.8%, respectively, over the past three years. FSLR’s revenue and EBITDA, on the other hand, rose at CAGRs of 6.1% and 35.7%, respectively, over the same period.
SEDG’s EPS is expected to increase at 20% per annum over the next five years, while revenue is expected to rise by 19.3% next year.
Contrarily, FSLR’s EPS is expected to grow at a rate of 26% per annum over the next five years. Analysts expect revenues to increase by 6.6% next year.
FSLR’s revenue is 2.30 times what SEDG generates. However, SEDG is more profitable with a gross margin of 32.5% compared to FSLR’s 25.3%.
SEDG’s ROE and ROA of 19.8% and 6.8% compare favorably with FSLR’s 4.2% and 4.8%, respectively, making SEDG the more profitable stock here.
In terms of forward P/E, SEDG is currently trading at 88.99x, 75.8% more expensive than FSLR, which is currently trading at 21.53x. SEDG is also more expensive in terms of non-GAAP forward PEG ratio (2.17x versus 1.72x).
SEDG’s trailing 12-month Price/Sales of 8.42x is 69.6% more expensive than FSLR’s 2.56x.
FSLR is rated “Buy” in our proprietary POWR Ratings system, while SEDG is rated “Neutral”. Here’s how the four components of overall POWR Rating are graded for both these stocks:
FSLR has a “B” for Trade Grade and Buy & Hold Grade, and “C” for Peer Grade and Industry Rank. It is currently ranked #2 out of 19 stocks in the Solar group.
SEDG has a “C” for Trade Grade, Buy & Hold Grade, and Industry Rank, “D” for Peer Grade. It is currently ranked #6 in the same group.
SEDG is trading above its 200-day moving average of 196.35, but below its 50-day moving average of $263.88, indicating limited short-term bullishness. The company’s quarterly revenues declined 17.6% year-over-year, primarily due to the pandemic is driven business disruptions.
FSLR, on the other hand, is currently trading above its 50-day and 200-day moving averages of $82.84 and 65.34, respectively, indicating an uptrend in the stock. Its strategic expansion plans to international markets and joint ventures with industry leaders have boosted its growth, as its quarterly revenues grew 69.6% year-over-year. Thus, FSLR is a better buy here.
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FSLR shares were trading at $85.28 per share on Monday morning, up $0.59 (+0.70%). Year-to-date, FSLR has gained 52.39%, versus a 12.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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