Solar energy has been touted as a viable energy source for the future. The need and demand for clean renewable energy has been increasing in recent years. But a New York Times story reports how increasing demand does not mean rising stock prices for solar energy companies.
is partly the result of industrial policies of foreign nations like China that subsidize solar energy. In short, these subsidies have pushed the price of solar energy panels down worldwide. So the tumble in these prices can squeeze profit margins and push down share prices of solar companies like SolarCity Corp (NASDAQ:SCTY), SunPower Corporation (NASDAQ:SPWR) and Sunedison Inc (NYSE:SUNE).
However, a consensus of analysts favors investing in these and other similar outfits for the long term. But these companies’ profits are rather weak, and some investors have been burned by serious share price volatility in this sector.
Solar City
The company is a leader in clean energy services like solar power. Solar City’s recent financial reporting shows that revenues are on the rise (an indicator of future earnings growth).
In fact, revenues were up – $30.0 million in the latest Q1/2013 from $24.8 million compared to the same quarter in 2012. But the outfit missed earnings expectations in the latest quarter – a loss greater than many analysts were expecting. Shares are presently trading around $37.50 coming on the heels of a serious correction from a 52 week high of $52.77. And another 61+ million shares are now eligible for trading, which could push the price lower in the short-term.
That said, the company recently announced a new zero-down financing program for home builders. This appears to be a play to capitalize on a nascent recovery in the housing market. The program enables homebuilders in six states – four in the west and two in the eastern US – to offer solar power in new residential communities with no upfront costs.
Further, Solar City has previously made the use of solar panels more feasible through a creative solar lease program. And observers in the solar panel sector believe this leasing model will become a source of future revenues. Meanwhile, investors should consider holding off until the likely sale of newly available shares establishes a floor.
SunPower Corporation (NASDAQ:SPWR)
SunPower Corporation (NASDAQ:SPWR) designs, manufactures, and delivers solar electric systems for residential, commercial, and utility-scale power plant customers worldwide.
The outfit has a current market cap of $2.5 billion, and shares are up a whopping 261+% in 2013. SunPower Corporation (NASDAQ:SPWR) is said to be strong in a number of key areas like revenue growth. The company also has a solid record of earnings growth. Like Solar City, SunPower Corporation (NASDAQ:SPWR) has implemented a leasing strategy that many observers believe will enhance revenue growth for the next 20 years.
However, at this time the company’s profit margins are rather weak. This is largely due to the sharp decline in prices for solar panels. Also, solar power is still far more costly than coal and natural gas – this explains why solar energy providers are being subsidized not only by nations like China but the US as well (think Solyndra).
Finally, SunPower Corporation (NASDAQ:SPWR)’s shares are presently trading at $21.45, far higher than the 52 week low of $3.71 and a bit off the high of $23.76. While the price surge could be related to the company’s history of revenue and earnings growth, shares may have hitched a ride on the dramatic rise of the broader markets.
Sunedison Inc (NYSE:SUNE)
Sunedison Inc (NYSE:SUNE) is continuing its push into the solar energy sector. The company has a market cap of $1.95 billion, and its forward looking PE ratio is 16.5. Like its rivals, Sunedison Inc (NYSE:SUNE) is employing a leasing model for solar panels that could compete with Solar City and SunPower.
Sunedison Inc (NYSE:SUNE) also has a semiconductor unit. Some analysts argue the company will sell off this unit and reinvest the cash in its solar panel enterprise. The question remains as to whether Sunedison Inc (NYSE:SUNE) and the other solar panel players will succeed in maximizing revenues from their leasing models.
The company’s shares presently trade at $8.40, slightly off the $8.56 high and far above the 52-week low of $1.68. So some profit taking could be on the horizon.
The bottom line
The goal for cleaner renewable energy sources is laudable. But the solar energy sector still has many challenges. And the biggest challenge is poor profit margins. In the meantime, coal and natural gas are still cheaper, more efficient sources for generating energy despite the adverse effects on the environment. Another challenge going forward is utility companies poised to take over this sector as it becomes more efficient.
Ultimately, it is unclear how long it will take for solar energy to improve its efficiency and for solar panel companies to become profitable investments.
The article Solar Energy: The Wave of the Future? originally appeared on Fool.com.
Kyle Colona is a freelance writer from the New York area with a broad background in legal and regulatory affairs in the finance sector. His extensive body of work is accessible on the web. Mr. Colona is not a financial advisor and he does not hold a position in the stocks mentioned herein. This article is for informational purposes only and should not be construed as financial advice. Kyle is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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