With the markets down, solar stocks are starting to cool

The stock market suffered another drop on Thursday, adding to Wednesday’s sharp decline as investors grew more concerned about the state of the economy and earnings from their favorite companies. the Dow Jones Industrial Average (^ DJI -0.76%)And NASDAQ Composite (^ix)And Standard & Poor’s 500 (^ GSPC -0.76%) All decreased up to 1% on the day.


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Data source: Yahoo! finance.

Solar stocks have done very well over the past year, with a popular exchange-traded fund (ETF) of various solar companies seeing gains of more than 20% since January 2022 even as markets fell. However, so far in 2023, investors seem to be putting a damper on the solar industry, and stock prices are back on the ground. Below, you’ll learn more about which items get pulled down solar stock And whether they can recover in time.

Major declines for major solar players

Some of the biggest setbacks have come from the darlings of the solar industry. Enphase energy (ENPH -10.92%), which makes microinverters that allow individual solar panels to convert its power output from direct current to alternating current, its stock fell 11% on Thursday. Peers SolarEdge Technologies (SEDG -10.32%)Inc., which also makes several smart energy products, suffered a 10% drop.

The impact was also seen in the stocks of the most prominent solar energy systems companies in the field of renewable energy at the residential and utility levels. Sonron (He runs -10.39%) And The power of the sun (SPWR -10.44%) Both are down more than 10% as well, while First Solar (FSLR -7.07%) It took a hit of 7%.

For many of these stocks, today’s declines were the latest in a long-term decline over the past several months. Since September 2022, for example, SunPower has seen its stock drop more than 40%. Enphase has lost a third of its value since early December.

Does the future look brighter?

It’s easy to understand why so many solar stocks are down at the start of 2023. Many solar companies have done very well in recent years, sending stock valuations skyrocketing. This left them vulnerable to a sharp decline.

Enphase is probably the best example of this. The small variator specialist’s revenue has more than tripled since 2019, with significant gains in net income as well. This played a pivotal role in sending shares from around $30 a share three years ago to as high as $340 a share late last year. Even after falling sharply from those highs in recent months, Enphase still delivers multi-share returns for long-term shareholders.

Even after the decline in Enphase stock, Many still do not see that the company’s prices are cheap. Earnings from the solar specialist have come in at just over $2 per share over the past 12 months, implying a trailing multiple above 100. Even with those who follow the stock expecting earnings to improve to more than $5 per share for 2023, no Enphase still advances multiple in the range 40 to 45.

Investors have learned over the past year that high valuations can quickly reverse lower, leaving those with huge paper gains to see them fade away. Shareholders of high-growth stocks like solar companies need to be prepared for this kind of volatility. In the end, though, the companies with the strongest business models have the best chances of delivering strong long-term returns for disciplined investors.

Dan Caplinger He has no position in any of the aforementioned shares. The Motley Fool recommends Enphase Energy, First Solar, and SolarEdge technologies. The Motley Fool has a Disclosure policy.

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