The case for multibagger solar stocks may not be particularly convincing at this point, but there are signs of a market bottom, which makes it attractive to pick up some of the top solar stocks at current prices. The need for renewable solar energy is undeniable, and the potential for added services, including energy storage and electric vehicle (EV) charging stations, suggests robust growth potential.
One of the biggest reasons for the shift is California’s new net metering policies, which make it significantly less attractive for Californian residents to send surplus electricity back to the grid. Furthermore, you have the rising interest rates diminishing the value of future cash flows that most solar companies rely on. Most solar projects are financed over long periods ranging from a decade to sometimes over 25 years.
If that wasn’t enough, material and labor costs have risen substantially in the past year, which made 2023 a forgettable year for the industry.
With these challenges in mind, let’s take a closer look at three solar stocks that still offer compelling investment opportunities:
First Solar (FSLR)
First Solar (NASDAQ: FSLR ) has been one of the top-performing solar stocks over the past decade, mirroring the S&P 500’s returns. Its solid performances are due to its consistent top-and-bottom-line growth over the years, positioning it as a giant in its niche.
Moreover, it delivered healthy net profits for the bulk of the past decade, with almost $2 billion in cash on hand .
Unlike most of its peers, FSLR stock has been ticking in the green over the past six months, with analysts upbeat about its future. Wells Fargo analyst Michael Blum recently upgraded the stock from ‘equal weight’ to ‘overweight,’ with a new price target of $250.
He highlighted that the firm’s solar panels are fully booked until 2026 , offering stability in near-term earnings.
Furthermore, the company continues to invest billions in research and development, having invested a whopping $1.1 billion last year in establishing a new manufacturing plant in Iberia Parish, Louisiana. This facility can boost its productive capacity by 3.5 gigawatts (GW), positioning it to achieve 14 GW in manufacturing capacity in the U.S. and 25 GW globally within the next two years.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ: ENPH ) develops and sells home energy systems for the solar industry, specializing in semiconductor-based micro inverters.
Like its peers, Enphase has witnessed a slowdown in top-line growth in the past year while shedding more than 50% of its value .
However, it has effectively managed its business through its asset-light model, posting stellar profitability metrics. Its approach minimizes physical assets and overhead, shielding it from major financial duress.
Moreover, the company’s financial resilience is shown further by its healthy cash reserves and stable debt levels, positioning it well against economic uncertainties. It attracts a 7 on 10 financial strength rating from Gurufucus based on several key liquidity metrics.
Also, its Altman-Z score of 5.50, a key bankruptcy indicator, is firmly in the safe zone.
As we advance, Enphase is looking to expand its focus beyond residential to include commercial and potentially utility-scale projects with some of its products, such as IQ8 Commercial Microinverter.
Canadian Solar (CSIQ)
Canadian Solar (NASDAQ: CSIQ ), is another in the long line of solar stocks that took a beating at the hands of Mr.Market last year. CSIQ stock tanked more than 60% in the past year alone, more so than its peers.
A lot of it is due to it being mispriced as a Chinese company, although headquartered in Canada. It does the bulk of its manufacturing in China though, but only 22% of its revenues are from North America, which shields it from U.S. tariffs on Chinese panels.
What separates the company from its peers, is that it not only manufactures panels but also develops its own projects. Consequently, it can sell complete projects rather than just components, which creates the potential for a windfall in sales.
Financially, the company is robust, but it trades at just four times earnings with approximately $1.94 billion in cash . Its valuation suggests that the assets alone make it significantly undervalued by the market.
