It’s no secret that solar energy stocks have been major disappointments in recent years, despite the global push towards renewable energy. So, what’s going on? Why are these stocks tanking when the long-term case for solar power seems so bullish?
One recent event contributing to the drop is the profit warning and revenue guidance cut from SolarEdge (SEDG), a key supplier of inverters for the solar panel industry. Their slashed Q3 revenue guidance indicates a decline in installation rates, even during the typically strong late summer and early fall season. While this explains the recent drop, it doesn’t account for the months of decline prior to that.
The reality is that the solar industry has been facing challenges related to supply and demand. When China shut down during the pandemic in 2020, solar panel supply plummeted and prices soared. This led to a surge in solar stocks at the end of 2020. However, it also spurred increased production, resulting in a glut of panels and supplies. Even a small drop in demand can quickly lead to oversupply, which is what we’re experiencing now.
Despite the challenging market conditions, there are reasons for cautious optimism. The recent drop in solar stocks may present an opportunity for traders employing a “sell the rumor, buy the fact” strategy. The misalignment of supply and demand has been anticipated and partially priced into the market, so the confirmation of these rumors could trigger short-term profit-taking by sellers and buying from value seekers.
Additionally, the valuation of stocks like SolarEdge has decreased significantly, making them appear relatively cheap. This revaluation is justified given the excess supply and lower prices. However, as the oversupply is gradually exhausted and industry pricing adjusts to a tighter market, solar power stocks are expected to recover.
While short-term volatility is expected given the negative sentiment around the solar industry, the long-term outlook for solar power remains promising. The global demand for renewable energy continues to grow, and oversupply issues will eventually be resolved. As the market corrects itself, stocks like SolarEdge have the potential for recovery.
It’s important for investors to keep an eye on these developments and consider the long-term potential of solar stocks when making investment decisions. Despite the recent challenges, the fundamental shift towards clean energy remains intact. The drop in solar stocks may offer a chance for savvy investors to enter the market at a favorable price point, especially as the industry undergoes the necessary adjustments to address oversupply.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Nasdaq, Inc.