Solar companies: What do the numbers say?
Opdateret: aug. 17
If you follow me on eToro you have probably read that I'm currently looking into the solar sector. I have decided to look into companies operates in the industry. The purpose of this post is solely to look at the numbers on various companies that trades on the U.S. stock exchange
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
This post will be a bit different than my usual posts. I will not do an analysis of a specific company and calculate a buy price, as I have previously done. In case you have missed it, you can read my analysis about iRobot or Ulta Beauty. I haven't open a position in iRobot yet as my buy price hasn't been triggered, while I did open a position in Ulta Beauty once my buy price got triggered and has since closed it at a 70 % profit, which shows the strength of my strategy.
I have often written about how I foresee a great future for renewable energy. I have mainly focused on the European Union, as they want to use 1 trillion euros in investments to make the EU economy more environmentally friendly over the next 10 years. Besides that the EU wants to cut greenhouse gasses by 55 % in 2030 and have announced that 37 % of the 750 billion euros coronavirus recovery fund should be spend on environmental objectives. Due to these reasons I have opened positions in European renewable energy companies such as Siemens Gamesa and Iberdrola at eToro, while I have long owned shares in Vestas and Ørsted through my Scandinavian broker. While Iberdrola does provide solar energy, I have mainly focused on wind energy, in which I have some knowledge. Solar energy is relatively new to me, which is why I'm doing this post. Since I first made this post, I have opened a position in Canadian Solar. You can read my analysis of Canadian Solar here.
As we all know now, Joe Biden will be the next president of the United States. Joe Biden have previously announced a 2 trillion dollars climate plan, which is obviously good for renewable energy companies that are operating in the United States. It could be another catalyst for renewable energy companies that operates in the U.S.
As I wrote previously, the solar sector is still a sector I'm trying to learn more about. However, what I have learned is that the companies differentiate in what they are producing. Some are making solar panels, others are making inverters while some install and maintain solar panels. Because of this, you won't be able to compare all of the companies I write about here one to one, in case you are doing an analysis. However, my goal here is only to look into the numbers and see how the companies have performed in the past. Some of them will most likely perform better in the future. I will go through the five numbers I usually do and I will look into debt as well. In case you want to read more about what the numbers mean, you can read about it in "my strategy" on this site.
The first number we will look into is the return on investment capital, also known as ROIC. We want to see 10 years of history and we want the numbers to be above 10 % in all of the benchmarks. We do not have 10 years of history for all companies, so we will need to do with the numbers we have. The only company that meets the criteria in all benchmarks is SolarEdge but unfortunately we only have 7 years of history. Canadian Solar's numbers is a bit underwhelming but much better than the rest of the companies, even though we might see some momentum from Enphase Energy. Sunrun and First Solar are underperforming, while SunPower has bad numbers except in the last benchmark.
The next numbers we will look into are the Sales Growth Rates. As we can see the Sales Growth Rate is well above 10 % in all benchmarks and Ideally we would like to see the numbers increase in every benchmark. Enphase, SolarEdge and Sunrun all show great numbers. The numbers of Canadian Solar is a bit underwhelming, while Fist Solar and Sunpower have bad numbers. While I usually don't give much importance to the one year benchmark, it is worth noticing that First Solar is the only company with negative numbers last year.
The next numbers are the EPS Growth Rates. As with all other growth rates we want the numbers to be above 10 % in all benchmarks. There are two companies that positive numbers in all of the benchmarks and that is SolarEdge and Sunpower. I don't know what happened with Sunpower last year, as I haven't looked into the company in depth. Enphase has great numbers in all of the benchmarks except for the last, while Canadian Solar is somewhat of a mixed bag. Sunrun has previously had great numbers but the latest numbers are bad.
The Equity Growth Rate is, according to Phil Town, the most important of the four growth rates, and needs to be above 10 % as well. Enphase, SolarEdge and Sunrun all show fantastic numbers, while Canadian Solar is also above the requirements in all of the benchmark. First Solar is underwhelming throughout all of the benchmark, while Sunpower have shown bad numbers in all of the benchmarks until the weird numbers last year. Once again I don't know what happened with Sunpower last year.
The final numbers we look into are the Cash Growth Rates. Once again Enphase have great numbers and is the only company with positive numbers in all of the benchmarks. SolarEdge only have one bad year, which is the last year. Sunrun is a mixed bag, while Canadian Solar, First Solar and Sunpower mainly have bad numbers.
Another important thing to look into is debt, and we want to see if a business has a reasonable debt that can be paid off within 3 years. We do so by dividing the total long-term debt by current cash flow. Enphase doesn't have any significant debt, as the number is 0,04 years. First Solar can pay of their debt in 0,6 years and Sunpower in 1 year. It means that all of these three companies live up to the requirement. SolarEdge can pay off their debt in 4,09 years, while it is 4,56 years for Canadian Solar. These numbers are a little too high but isn't enough to scare me away from investing in the companies. It will take Sunrun more than 10 years to pay off their debt, which means there should be a really good reason for them obtaining that debt in order for me to invest in them.
We have now gone through the numbers of all of the companies. I wouldn't invest in either First Solar, SunPower or Sunrun, as I don't like their historical ROIC. While Sunpower and Sunrun show some great numbers in some the growth rates, it isn't enough to make up for the overall performance, and I certainly don't like the high amount of debt of Sunrun. First Solar is just underwhelming in all of the numbers, and despite them having an advantage right now due to tariffs in the U.S. I still prefer to stay away. Enphase and SolarEdge are both very interesting companies that are both on my watchlist. However, according to my calculations they are currently too expensive to invest in. As I have mentioned previously, I have already invested in Canadian Solar, and you can read why in my analysis here.
My personal goal with investing is financial freedom. It also means that to obtain that, I do different things to build my wealth. If you have some extra hours to spare each month, you can turn a few hours a week into a substantial amount of money in a few years. If you are interested to know how to do it, you can read this post.
I hope that you enjoyed my analysis. Unfortunately I cannot do a post of all the companies I analyze. I am available to copy but if you do your own trades, you can follow me instead or check out my portfolio every now and then.
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