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Energy demand has fallen around the world since Covid-19 began to spread, and that has hurt the performance of companies delivering all sorts of power. The solar industry is no exception. One U.S. industry association projected that the pandemic will erase five years’ worth of job growth. But solar stocks have been bouncing back with more vigor than stocks in other industries like oil and gas.
Solar power equipment maker SolarEdge Technologies beat earnings expectations after hours on Monday and the stock was up 20% to a new all-time high on Tuesday morning. The stock has quintupled since the start of 2019, helped in part by competitor Huawei’s retreat from the U.S. market.
Several solar stocks have done well this year. The Invesco Solar ETF (TAN) is up more than 50% from the start of the year.
At a time when most traditional fossil-fuel energy sources are under pressure, solar remains a growth story that is maturing as an industry. Investors clearly like U.S. installer SunRun’s (RUN) deal to buy Vivint Solar (VSLR), creating a dominant installation company. With fewer big players competing, pricing could improve for the industry, which has had difficulty making profits for years.
SolarEdge makes things like inverters, which convert the power produced by a solar panel into a current that can be plugged into a larger grid. It also makes electric vehicle chargers. Those areas have been more profitable than other parts of the solar industry. SolarEdge routinely posts double-digit operating margins, even as companies that make the panels themselves—an extremely competitive industry—are often unprofitable.
SolarEdge’s earnings on Monday highlighted the relative strength of the solar industry compared with other energy-related industries. The company’s revenue actually grew on a year-over-year basis, propelled by strong results in Europe. In some European countries, SolarEdge’s installations were even higher than they were before Covid-19. Italy and other countries have included renewable energy in their stimulus programs, giving the industry an extra lift. SolarEdge’s total revenues in Europe were $144 million, up from $122 million last quarter.
And U.S. operations, where SolarEdge tends to make better margins, are improving too. Early in the second quarter, SolarEdge “experienced some level of cancellations and pushouts,” said SolarEdge CEO Zvi Lando on the company’s earnings call. “And the rate of those declined throughout the quarter to a point—or at the latter part of the quarter and the early parts of this quarter. We’re not seeing any of that, practically any more of those types of pushouts and cancellations.”
For the solar industry, the Covid-19 pandemic has been a challenge, but investors are convinced that the industry is already on the rebound and will emerge much stronger than before the crisis.
