Story Highlights
- High costs and underdeveloped technology challenged solar energy for decades.
- But that’s changing, as we can see from the sector’s 51% climb so far this year.
- Anthony Planas shares a way you can play the growing solar revolution.
Solar stocks are up 51% year to date. And we’re just getting started.
For decades, we’ve heard that solar is the next energy revolution.
But until now, costs were high, and the technology was still in its infancy.
The hype around the solar craze died off, and solar stocks came down. A popular solar exchange-traded fund fell 67% from 2015 to 2016.
Shares finally started to break out higher this year.
Improvements in tech are now making solar a competitive option. And costs are falling, which allows more people to buy in.
I dug into the sector and found a great way to play the trend in solar energy.
Rapid Growth Set for Solar and Wind Energy
The Energy Information Administration released its world electricity outlook. It forecasts renewable energy to provide nearly half of the world’s power by 2050.
You can see what I mean on the chart below:
Renewable energy currently accounts for 28% of the world’s energy mix.
As you can see, the prediction is for wind and solar energy to make up the largest growth opportunities.
Today, I’m just going to focus on the opportunity in solar energy.
While solar has reached a price point that makes sense for many of us, most producers still operate at a loss.
That’s because companies are plowing money back into research and development, and into updating manufacturing practices to keep up with new technology.
That means they are burning through investors’ cash. And valuations for these companies are based more on forecasts and feelings than fundamentals.
However, one company is outperforming the sector and posting a profit.
Best Play for the Solar Revolution
As I told you earlier, I did some research and found the best way to play the solar energy sector.
Many solar companies still struggle to be profitable.
But this company is a notable exception.
SolarEdge Technologies Inc. (Nasdaq: SEDG) is a company that produces inverters, the electrical boards that coordinate power flow from the grid, solar panels and buildings.
SolarEdge is a $4.2 billion global producer of compact and high-performance inverters.
I like it because it has a track record of growing revenue and earnings. Its earnings per share grew 409% from 2015 to 2018.
And top-line sales grew at a rate of 35.5% annually since 2015!
Take a look at the table below:
Plus, the company is expanding its commercial and residential offerings. That will keep it in a position to continue gaining market share. That’s how much it makes in total sales.
Its price-to-earnings (P/E) ratio is lofty at 39. That means it would take 39 years of earnings to buy the business at its current price. This is a sign that investors are bullish on growth.
But higher P/E ratios are normal for growth sectors. If SolarEdge can stay on course, it’ll justify its valuation.
And I want to hear from you. What companies in solar or renewable energy are you investing in? Are there any companies in this sector you’d like me to review?
Leave me a comment below.
Good investing,
Anthony Planas
Internal Analyst, Banyan Hill Publishing
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