The last few quarters have been unimpressive for solar stocks with a meaningful correction from highs. And it is exactly this correction that presents a prime opportunity to accumulate undervalued solar stocks for the long term.
It’s likely that solar energy will play the most important part in the shift towards renewable energy sources. Estimates indicate that by 2030 wind and solar will account for more than 30% of world’s electricity. For this scenario to hold true, big investments are needed and some of the top solar companies will be beneficiaries.
Another point to note is that the International Energy Agency has confirmed that solar power is the “cheapest energy in history”. This price factor gives solar energy an edge over all other renewable energy sources.
Therefore, it makes sense to remain invested in some of the best undervalued solar stocks that we will now explore.
First Solar (FSLR)
Considering the impending growth, First Solar (NASDAQ:FSLR) stock looks undervalued at a forward price-earnings ratio of 22.4. FSLR stock has trended higher by 21% for year to date (YTD).
The company is among the biggest player in the solar industry. First Solar manufactures thin photovoltaic (PV) solar modules which utilizes solar energy to generate electricity. As of 2Q 2023, the company has an impressive order backlog of 78 GW.
Further, First Solar continues to make big investments to expand its manufacturing footprint. The Company has invested $684 million in a 3.5 GW plant in India and expects its first sale to commence in November. Expansion in emerging markets will add to the company’s growth momentum.
A robust backlog and expansion plans back the company’s net sales guidance of $3.4 billion to $3.6 billion for the year. Moreover, the company expects operating margin to be healthy at around 21% to 24%. With operating leverage, sustained margin expansion is on the horizon.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) stock has plunged by 53.38% in the last 12 months. This sell-off is a good opportunity to buy with the stock looking significantly undervalued. Specifically, the stock is trading at a forward price-earnings-to-growth ratio of 0.27 as compared to the sector median of 0.82.
With the gradual shift from fossil fuel-based energy to clean and renewable energy, SolarEdge will benefit from its residential and diversified commercial products. In addition, the company has been delivering strong financials.
For Q2 2023, revenue increased by 36% on a year over year (YOY) basis to $991.3 million. Further, gross margin improved by 690 basis points to 32.0%. Notably, SolarEdge has presence in 36 countries and with this widely addressable market, healthy growth is likely.
Recently, the company announced the launch of its SolarEdge 330kW inverter. The new inverter has a power optimizer solution that’s “designed to help lower the levelized cost of energy”. This innovation is likely to provide the company with an edge, which will translate into value creation.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is another stock that has experienced a big correction in the last 12 months.
However, ENPH looks attractive at a forward price-earnings ratio of 24.3. Besides the valuation factor, Enphase has seen a steady improvement in fundamentals, likely to translate into a strong reversal rally.
For Q2 2023, Enphase reported revenue growth of 34.1% on a YOY basis to $711 million. For the same period, the company reported free cash flow (FCF) of $225.2 million. This implies an annualized FCF potential that close to $1 billion. Enphase reported $1.8 billion in cash and equivalents. This, coupled with positive FCF, provides Enphase with high financial flexibility.
In addition, the company’s revenue from Europe increased by 25% on a YOY basis. With superior quality of IQ7 microinverters, European growth can potentially accelerate.
On the date of publication, Faisal Humayun did not hold (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 biedexmarkets.com.com Publishing Guidelines