Governmental efforts worldwide to achieve carbon-neutrality, increasing oil prices, and the recent passage of a $1.75 trillion infrastructure bill, which provides significant funding and tax credits for the renewable energy and electric vehicle industries, bodes well for the solar industry. The global solar energy market is expected to grow at a 20% CAGR to $200 billion by 2026.
Although ongoing supply chain bottlenecks could affect the industry’s production slightly in the near term, rising government support should help the industry grow significantly in the long run. Investor interest in solar stocks is evident in the Invesco Solar Portfolio ETF’s (TAN) 5.7% returns over the past month, versus the SPDR S&P 500 Trust ETF’s (SPY) 3.3% gains.
However, solar stocks Sunrun Inc. (RUN), Sunnova Energy International Inc. (NOVA), Sunworks, Inc. (SUNW), and Solar Integrated Roofing Corporation (SIRC) are expected to remain under pressure in the near term due to their weak fundamentals and overvaluations. So, we think that they are best avoided now.
Sunrun Inc. (RUN)
RUN is a San Francisco-based 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, an 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.
Analysts expect RUN’s EPS to remain negative in the current year and next year. The stock missed consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has declined 16.1% in price and closed yesterday’s trading session at $50.65. In terms of forward EV/Sales, RUN is currently trading at 11.57x, which is 462.1% higher than the 2.06x industry average. In terms of forward Price/Sales, RUN is currently trading at 6.63x, which is 303.7% higher than the 1.64x industry average.
RUN’s weak prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
RUN has an F grade for Value, Quality and Stability, and a D grade for Momentum and Sentiment. Of the 18 stocks in the F-rated Solar industry, RUN is ranked #16. To see additional POWR Ratings for RUN’s Growth, click here.
Sunnova Energy International Inc. (NOVA)
NOVA is a residential solar and energy storage service provider that offers operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization, and diagnostics services. The Houston, Tex.-based company operates a fleet of residential solar energy systems with a generation capacity of approximately 790 megawatts.
On November 10, 2021, NOVA and Brinks Home announced an exclusive partnership that allows NOVA to offer options from the Brinks Home portfolio of smart home security solutions and allow Brinks Home dealers and authorized representatives to offer SUN’s suite of solar, battery, and energy services to their customers. NOVA’s operating loss for its fiscal third quarter, ended September 30, 2021, compared to $1.65 million in operating income in the prior-year period. The company’s net loss came in at $25.92 million for the quarter, representing a 64.6% decline from the prior-year period. Its loss per share decreased 65.8% year-over-year to $0.25.
NOVA’s EPS is expected to remain negative in the coming quarters of the current year and next year. It missed consensus EPS estimates in each of the trailing quarters.
NOVA’s stock has declined 8.8% in price over the past nine months and ended yesterday’s trading session at $38.88. NOVA’s 31.19x forward EV/Sales is 598.5% higher than the 4.46x industry average. In terms of forward Price/Sales, NOVA is currently trading at 18.02x, which is 627.8% higher than the 2.48x industry average.
NOVA’s POWR Ratings are consistent with this bleak outlook. NOVA has an F grade for Value and Quality, and a D grade for Momentum and Stability. The stock is ranked #15 in the Solar industry.
In addition to the POWR Rating grades I have highlighted, one can see NOVA’s ratings for Growth and Sentiment here.
Sunworks, Inc. (SUNW)
SUNW in Roseville, Calif., provides photovoltaic-based power systems for the agricultural, commercial, industrial, public, and residential markets. The company also designs, finances, integrates, installs, and manages systems ranging in size from 2 kilowatts for residential loads to multi-megawatt systems for larger projects.
On August 26, 2021, SUNW signed an agreement with CBG Building Company to provide a 752.4kW carport solar system for Orchard Park, a 1,549-bed student housing project on the UC Davis campus. This project will enable SUNW to gain expanding reach across California, accelerating its deployment of clean, renewable energy.
For its fiscal third quarter, ended September 30, 2021, SUNW’s operating loss increased 139.6% year-over-year to $6.46 million. The company’s net loss came in at $6.46 million, up 126.5% from the prior-year period. And its loss per share increased 41.2% year-over-year to $0.24.
Analysts expect SUNW’s EPS to remain negative in the coming quarters of the current year and next year. It missed the Street’s EPS estimates in each of the trailing four quarters and is expected to decline at a 126.4% rate per annum over the next five years.
Over the past nine months, SUNW shares have declined 56.3% in price and ended yesterday’s trading session at $5.06.
It is no surprise that SUNW has an overall F grade, which equates to Strong Sell in our POWR Ratings system. The stock is ranked last in the 18-stock Solar industry. SUNW has an F grade for Value, Quality, Stability, and Sentiment. Click here to see additional POWR Ratings for SUNW’s Momentum and Growth.
Solar Integrated Roofing Corporation (SIRC)
El Cajon, Calif.-based SIRC operates as an integrated, single-source solar power, HVAC, and roofing systems installation company. It provides sales and installation of solar energy systems, battery backup, and electric vehicle charging stations to roofing, HVAC, and related electrical contracting work. It offers services to commercial and residential facilities and properties.
On November 24, 2021, SIRC subsidiary USA Solar Networks launched a new sales program targeting U.S. poultry farmers to transition them to solar and alternative energy solutions for their energy-intensive operations. Also, the U.S. Department of Agriculture’s Rural Energy for America Program (REAP) has announced a grant for up to 25% of the solar project cost to eligible farmers. SIRC is looking forward to witnessing great demand from farmers in the coming months.
Over the past nine months, the stock has fallen 69.4% in price and ended yesterday’s trading session at $0.42. SIRC’s 11.27x trailing-12-month EV/Sales is 435.9% higher than the 2.10x industry average. In terms of trailing-12-month Price/Sales, SIRC is currently trading at 3.82x, which is 131.2% higher than the 1.65x industry average of 1.65x.
SIRC’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.
The stock has an F grade for Value, Quality and Stability, and a D grade for Growth and Momentum. Click here to see the additional rating for SIRC’s Sentiment. SIRC is ranked #17 in the Solar industry.
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RUN shares were trading at $49.93 per share on Wednesday afternoon, down $0.72 (-1.42%). Year-to-date, RUN has declined -28.03%, versus a 26.56% 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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