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Solar energy rules the world. And these two stocks could rule the sector. Don't they?

Jamie Cameron
26. 4. 2023
5 min read

The solar sector and its representatives are understandably under close scrutiny by investors who sense an opportunity. But how to find the right player? That's tough, but we can at least look together at two popular choices for investors in the sector.

Solar technologies are starting to take more and more bites out of the energy pie.

Before introducing the companies themselves, it's important to focus on understanding the sector itself. Is it too late to jump on the bandwagon?

The solar energy sector

The solar energy sector faces several significant challenges. The first is the dependence on government incentives and subsidies, such as tax credits, to remain competitive. When these incentives end, the growth of the solar industry could slow sharply. Another pitfall is that solar panels have high upfront costs, so they can take many years to recover. The cost of energy storage also continues to limit the expansion of solar power.

Nevertheless, the solar energy sector has considerable appeal and potential. Demand for solar energy is growing steadily, supported by a political commitment to the transition to renewable energy. Technological advances in panels, storage and other areas are helping to reduce costs and increase efficiency. Solar energy is also widespread, renewable and non-polluting compared to fossil fuels.

Solar energy development also creates significant economic opportunities, including new jobs in manufacturing, project development, and other services. By negating the use of fossil fuels, solar energy also increases energy security and resilience. Along with other renewable resources, solar can help transition to a more sustainable operating and energy system.

The sector is expected to grow from the current $100 billion to nearly $440 billion by 2030. The CAGR is thus 20%. Europe is currently the largest region and user of solar energy and its technologies, but Asia is growing rapidly and is poised for huge expansion.

SolarEdge Technologies $SEDG+4.1%

SolarEdge Technologies manufactures power optimizers and inverters that are used to convert solar energy into electricity. Its components have improved the way solar panels convert the direct current produced by the sun into alternating current used in the electric grid. A system that uses SolarEdge's power optimizers will cost less than a system that uses a microinverter made by, for example, Enphase Energy, with minimal loss of efficiency.

SEDG
$49.98 $1.96 +4.08%

Capital Structure

Market Cap
2.86B
Enterpr. Val.
3.37B
Revenue
2.24B
Shares Out.
57.30M
Debt/Capital
0.22
FCF Yield
-20.08%

Valuation / Dividends

P/E
-10.87
EPS
-4.60
P/S
1.28
P/B
1.27
Div. Yield
-
Div. Payout
-

Capital Eff. / Margins

ROIC
-9.01%
ROE
-10.82%
ROA
-6.27%
Gross
17.11%
Operating
-11.93%
Net Profit
-11.68%
0
1
2
3
4
5
6
7
8
9

SolarEdge's focus on producing low-cost power optimizers has allowed it to gain market share from competitors as solar developers focus on cost. The company has also invested money in acquiring and developing new products in energy storage and management, as well as smart modules that will help it increase average revenue per installation.

SolarEdge's strong balance sheet also gives it the flexibility to expand into other segments of the smart energy market. The company has made investments and acquisitions in storage, electric vehicle (EV) charging, batteries, uninterruptible power systems (UPS), EV drives and grid services solutions. These initiatives could accelerate its growth in the coming years and set SolarEdge up for success as it looks to take advantage of the rapidly growing clean energy sector.

This player is undoubtedly extremely strong. It's just that the way investors are trusting it is absolutely incredible. The P/E is almost 200! So personally, I would definitely watch the company, but wait for a more reasonable valuation before investing. And that's significant.

I'm interested in your opinion - would you invest in such a strong player despite absolutely insane numbers because you believe in it?

Altus Power $AMPS+5.3%

One potential risk to consider is the regulatory environment. The renewable energy industry is largely dependent on government policies and regulations, and any changes to these policies could have a significant impact on the company's operations and profitability. In addition, the Company operates in a highly competitive industry and its ability to continue to grow and maintain market share could be affected by changes in the competitive environment.

Altus Power is a renewable energy company that specializes in the development, construction and operation of solar energy projects. The Company has a diversified portfolio of projects located throughout the United States and has a track record of providing high quality and cost-effective solar solutions to its customers.

AMPS
$4.15 $0.21 +5.33%

Capital Structure

Market Cap
663.48M
Enterpr. Val.
1.99B
Revenue
166.44M
Shares Out.
159.88M
Debt/Capital
0.74
FCF Yield
-9.63%

Valuation / Dividends

P/E
-83.00
EPS
-0.05
P/S
3.98
P/B
1.44
Div. Yield
-
Div. Payout
-

Capital Eff. / Margins

ROIC
1.30%
ROE
-1.62%
ROA
-0.33%
Gross
60.18%
Operating
12.15%
Net Profit
-4.42%
0
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9

AMPS' primary goal is to create a clean energy ecosystem and support the transition to clean energy for its U.S. customers while facilitating the adoption of corporate ESG goals. The company is the inventor, owner and operator of large-scale rooftop, ground-mounted and carport photovoltaic and energy storage systems along with electric vehicle charging facilities that serve commercial and industrial customers as well as public sector and community customers. Basically, all they do is sell the energy generated from these systems and send it directly to the people living in the buildings, which are under contract to both parties.

Altus is not that well known or a big player, but analysts believe that due to its unique technologies and the growing demand for electricity (and especially that from renewable sources), it will grow, which will again benefit Altus.

Who is your favourite in the solar energy sector?

Disclaimer: This is by no means an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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