The global energy crisis has brought forward new opportunities in renewables. As the world shifts from fossil fuels to renewable energy sources, solar energy will play a vital role in the transition. The International Energy Agency predicts that solar photovoltaic (PV) capacity will triple over 2022 -2027. Despite increased investment costs recently due to surging commodity prices, solar PV is still the least costly renewable option in many countries. Thus, solar stocks have a significant opportunity in the coming years due to their cost advantage.
In addition, many countries have introduced policies to encourage the adoption of renewable energy. The Russian invasion of Ukraine, and the ensuing energy crisis, made countries scramble for sustainable renewable sources to guarantee energy independence. Governments across the globe have established policies that offer tax incentives, grants and subsidies for solar projects. For instance, the Inflation Reduction Act (IRA) provides tax credits for solar PV equipment and inverters. It incentivizes solar investments by reinstating the 30% investment tax credit, extending the production tax credit ) to include energy generation from solar, and providing other incremental subsidies. These incentives will lead to increased growth opportunities for solar companies.
Considering policy-related upside and secular growth as renewables replace fossil fuels, solar stocks will benefit. This article will explore three solar stocks poised for significant growth in the next five years.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) is one of the largest manufacturers of solar panels in the world. The company produces high-quality, thin-film solar panels known for their durability and efficiency. By utilizing Cadmium Telluride in the absorption layer, their technology allows for higher energy conversion efficiency than traditional silicon-based panels. In addition, due to the cost advantage of thin-film technology over traditional silicon-based panels, their solar solutions are preferred for utility-scale solar projects.
Analysts expect shares to react positively to the secular demand over the next decade. First, their revenues are growing rapidly as more solar projects come online across the globe. In their Q4 2022 results, they reported a record contracted backlog and raised their revenue guidance for fiscal year (FY) 2023 to $3.4B to $3.6B representing at least a 30% growth. Secondly, the solar panel manufacturer will be one of the biggest beneficiaries of the IRA. As they ramp up production and upgrade factories, they expect to receive tax credits of $660 million to $710 million in FY2023 from the IRA.
Finally, First Solar continues to pursue opportunities for global expansion. While U.S. markets currently account for 84% of revenues, the company is expanding operations in India and Europe. For instance, they are constructing a manufacturing facility in India that will commence operations in the second half of 2023. The company’s strong financial position, innovative technology and extensive tax benefits from the IRA make it an attractive investment for the long term.
Enphase Energy (ENPH)
Another beneficiary of increased solar installation is Enphase Energy (NASDAQ:ENPH). It is a technology company that designs and manufactures microinverters for solar panel systems. Microinverters convert the direct current electricity produced by solar panels into alternating current electricity that homes and businesses can use. According to Wood Mackenzie, Enphase currently holds a 48.1% market share in the residential inverter market. Due to its dominant position, Enphase is an attractive investment for the long term.
Enphase revolutionized the solar market with its technology and its systems have been shipped to over 145 countries. In response to the strong momentum in operating results, the market has rewarded the stock. It has been one of the best-performing solar stocks over the last five years, delivering a 4,700% return.
Analysts expect earnings to continue to impress, rating the stock as a strong buy. The latest quarterly report showed a 14% quarter-over-quarter (QoQ) revenue growth. Going forward, the company expects increased demand due to the IRA and will begin domestic manufacturing in 2Q 2023. It has also expanded its product portfolio beyond microinverters, launching a new energy storage system in 2020. This expansion into the energy storage market is a significant growth driver for the company as more homes and businesses look to store excess solar energy for later use.
SunPower Corporation (SPWR)
SunPower Corporation (NASDAQ:SPWR) is a leading renewable energy company that provides solar systems to residential customers. It offers pre-engineered solar modules for residential applications, system installations and integrated power management systems.
The recent power inflation and volatile fuel prices are pushing consumers to seek alternatives. Luckily, U.S. consumers can now save money on solar systems with IRA incentives. Due to the growing demand, residential solar installers have opportunities for profitable growth over the next five years. In 2021, SunPower acquired Blue Raven Solar expanding its geographical footprint to reach more customers. The acquisition increased its market from 8 to 19 states allowing it to enter the underpenetrated Northwest and Atlantic regions. So far, these expansion initiatives are paying off, as the company added 83,000 new customers in 2022, a 49% year-over-year increase.
Besides the geographical expansion, SunPower has added to its product offerings beyond solar panels, launching energy storage, power-sharing, plug-and-play, and cable management systems. This diversification effort presents a pathway for sustained revenue growth over the next five years as the company expands its presence in the renewable energy market. SunPower’s stock is a good investment opportunity given its current market capitalization of $2.3 billion, a forward price-to-earnings (P/E) ratio of 20, and an adjusted EBITDA growth rate of at least 16% for FY2023.
On the date of publication, Charles Munyi did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.