Undeniably, one of the worst-hit sectors overall last year was solar stocks. So, why bother even considering this embattled sector? Basically, the fundamental narrative may change.
While solar stocks indeed suffered either disappointing performances or hefty losses, much of that centered on broader economic conditions. During the post-pandemic heyday of the renewable energy segment, low-interest rates undergirded sentiment. However, as inflation started soaring, the Federal Reserve had to step in. Subsequently, higher rates clouded the narrative.
The problem presented a double whammy. On the consumer end, people and enterprises suffered difficulties in financing solar-related costs. On the business end, higher borrowing costs imposed challenges regarding expansion and other endeavors. However, the Fed then hinted at reduced rates in 2024, which sparked a resurgence in solar stocks.
To be fair, there will be plenty of economic data to determine the trajectory of this industry. So, a vigilant approach backed by due diligence is a must. Still, if you can accept volatility risk, these solar stocks appear enticing for the speculator.
Enphase Energy (ENPH)
Billed as an energy technology company, Enphase Energy (NASDAQ:ENPH) develops various components of the solar value chain, including micro-inverters and electric vehicle charging stations. Despite its relevancies, however, ENPH suffered a big blow in 2023. Over the past 52 weeks, shares collapsed nearly 51%. However, it’s been marching higher since November, presenting hope for speculators. As well, analysts rate shares a consensus moderate buy.
While Enphase covers multiple areas of the solar space, I’d like to focus on its battery energy storage system business. According to DataHorizzon Research, the underlying sector reached a valuation of $9.9 billion in 2022. Further, experts project that the segment will expand at a compound annual growth rate (CAGR) of 14.6% to 2032. At the forecast culmination, the space may be worth $38.3 billion.
Now, that’s just one component. When married with the other relevant business units, ENPH may be one of the solar stocks to recover if the Fed goes through with a dovish monetary policy. Further, with shares trading at a trailing-year earnings multiple of 29.74X, it’s significantly de-risked from prior elevated multiples.
First Solar (FSLR)
Based in Tempe, Arizona, First Solar (NASDAQ:FSLR) is a manufacturer of solar panels. It also provides utility-scale photovoltaic (PV) power plants and supporting services. To be sure, FSLR has been one of the better-performing solar stocks. Then again, that’s not quite saying much. In the past 52 weeks, FSLR gained 14%, which isn’t impressive considering the performance of benchmark indices. Still, analysts are hopeful, pegging shares a consensus strong buy.
Again, First Solar involves itself throughout many arms of the solar value chain. For the purposes of this article, I’d like to call attention to the global solar energy systems market. Per Grand View Research, this sector reached a valuation of $160.3 billion in 2021. Experts anticipate a CAGR of 15.7% from 2022 to 2030. At the culmination point, we may be talking about sector revenue of $607.8 billion.
In terms of financials, FSLR offers a tempting proposition among solar stocks. Namely, shares trade at a forward earnings multiple of 12.86X. That’s lower than 86.57% of the competition. Is that too low? Anything is possible. However, given the growth rate of the sector, this may be a credible discount.
Sunnova Energy (NOVA)
Headquartered in Houston, Texas, Sunnova Energy (NYSE:NOVA) offers myriad services within the green and renewable energy space. Through solar, battery storage, EV charging and other solutions, homeowners can effectively jump into the future of power. Does it come with risks? Yes, in the past 52 weeks, shares suffered a loss of almost 21% of equity value. Nevertheless, analysts also rate shares a consensus strong buy with a $20.34 average price target.
At the time of writing, the above target implies growth of nearly 50%. If you’re skeptical about this target, consider the following. Per Grand View Research, the U.S. residential solar PV market size reached a valuation of $7.45 billion last year. Further, experts project that the segment could expand at a CAGR of 14.4% from 2024 to 2030. At the culmination point, industry revenue may reach $17.68 billion.
Now, the problem with NOVA – if you’re the conservative type – is the high degree of risk. According to investment data aggregator Gurufocus, the company suffers from nine red flags. Among them, a consistent issuance of debt and a distressed Altman Z-Score reflect serious troubles.
However, if the Fed lowers rates, NOVA could be intriguing for speculators.
On the date of publication, Josh Enomoto 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.