NOVA: Beware of These 2 Overvalued Solar Stocks

The solar industry has been one of the best performing industries over the past year as governments the world over initiated measures to strengthen clean energy infrastructure to address climate change concerns. The U.S. plans to achieve net zero-emissions by 2050, while China plans to hit that level by 2060. Major European countries have also announced their plans to achieve carbon neutrality over the next few decades. A significant decline in the cost of tapping solar energy has been another important factor boosting the industry’s growth.

With the demand for solar energy growing each day, many start-ups are capitalizing on the boom. However, some of these stocks are advancing even with inadequate business models and product pipelines; they lack adequate fundamental strength to justify their lofty valuations, we believe.

Sunnova Energy International, Inc. (NOVA) and VivoPower International PLC (VVPR) have delivered triple digit returns over the past year. But they currently look overvalued and given their minimal future growth prospects are best avoided now.

Sunnova Energy International, Inc. (NOVA)

NOVA provides residential solar and energy storage services and maintenance support for solar equipment across the U.S. The company offers design and installation services, energy resiliency and reliability support, and operations and maintenance support to its customers.

A couple of days ago, NOVA expanded its Solar and Storage Services to the District of Columbia. Nova will provide homeowners access to all its loan products, including its flagship solar-only system, Sunnova SunSafe solar + battery storage service, and +SunSafe add-on battery service, thereby, providing affordable and integrated energy solutions to cater to rising consumer demand.

However, despite this development, the company’s results for the third quarter ended September 30, 2020 are far from impressive. Its EBITDA has decreased 621.6% year-over-year to a negative $32.16 million in the third quarter (ended September 30, 2020). And its net loss has increased 113.3% from the year-ago value to $73.29 million, yielding a net loss per share of $0.73, up 17.7% over the same period.

The stock has gained 213.1% over the past year. In terms of forward-12-month price/sales, the stock is currently trading at 30.29x, 1166.3% higher than the industry average 2.39x. Analysts expect NOVA’s EPS to decrease 966.7% year-over-year to a negative $0.26 in the about-to-be reported quarter (ended December 31, 2020).

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NOVA’s POWR Ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an overall rating of F, which equates to Strong Sell in our proprietary rating system. NOVA has a D grade for Stability, Momentum, and Sentiment, and F for Value and Quality. It is currently ranked #51 in the F-rated, 51-stock Energy – Services Industry.

In total, we rate NOVA on eight different levels. Beyond what we stated above, we have also given NOVA grades for Growth. Get all of NOVA’s ratings here.

VivoPower International PLC (VVPR)

VVPR is an international solar and critical power services company. It provides critical energy infrastructure generation and distribution solutions, including the development, construction, and sale of photovoltaic solar projects to a range of commercial and industrial customers. It operates through three segments: Critical Power Services, Solar Development, and Corporate Office.

Despite a 12% year-on-year revenue increase to $48.70 million in the year ended June 30, 2020, VVPR reported a net loss of $5.10 million, yielding a net loss per share of $038.

The stock has gained 1008.3% over the past year. In terms of trailing-12-month EV/EBITDA, the stock is currently trading at 142.26x, 1048.2% higher than the industry average 12.39x. Also, in terms of price/sales, the stock is currently trading at 3.81x, 58% higher than the industry average 2.41x.

VVPR’s poor prospects are apparent in its POWR Ratings also. The stock has an overall F rating, equating to Strong Sell in our proprietary rating system. VVPR has a D grade for Momentum, Stability and Value, and F for Quality. In the F-rated, 17-stock Solar Industry, it is ranked #14.

Click here to see the additional POWR Ratings for VVPR (Growth and Sentiment).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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NOVA shares were trading at $47.99 per share on Tuesday afternoon, down $2.98 (-5.85%). Year-to-date, NOVA has gained 6.34%, versus a 5.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...