Solar stocks have dropped by double digits this week on several near-term issues impacting the entire industry. The question now is, is this a buying opportunity?
Solar stocks have had a rough go lately.
The TAN Solar Invesco ETF—which tracks the biggest names in the industry—is down more than 13% over the last week, bringing its year-to-date declines to nearly 26%.
TAN’s top holdings, likewise, haven’t fared well either.
SolarEdge (NASDAQ: SEDG) is down more than 22%. Enphase Energy (NASDAQ: ENPH) has shed nearly 14%. Sunnova (NYSE: NOVA) has dropped 20%. SunPower (NASDAQ: SPWR) is down over 16%. And SunRun (NASDAQ: RUN) is down just under 22%.
SolarEdge dropped 16% on Tuesday after the company warned that its margins could be lower going forward amid logistics-related cost pressures.
“Ocean freight prices have increased by more than 100% over the last months and our pre-negotiated prices have gradually expired and exposed us to higher freight costs worldwide,” SolarEdge CEO Zvi Lando said on the company’s earnings call.
Beyond freight concerns, the solar industry is facing a number of issues this year including higher prices for steel and aluminum and the global semiconductor shortage. Semiconductors are key components for both battery storage and solar inverters.
“Boiling the bevy of issues down, they all impact gross margins – and gross-margin trends historically have been leading indicators of how the stocks trade,” said Cowen analyst Jeff Osborne.
But despite the near-term headwinds facing the industry, analysts are still bullish on the solar sector’s longer-term prospects.
“We are encouraged by the demand trends and believe long-term investors should buy stock weakness ahead of expected improvements in supply constraints over the coming quarters,” JPMorgan analysts said in a note.
Evercore analyst James West like one name in the sector in particular: SunRun, the largest solar-panel installer in the U.S.
“Homes with electric vehicles consume approximately double the amount of electricity,” West, who rates the stock an Outperform, said. “Therefore, SunRun can help consumers and the grid meet this higher demand by utilizing home solar and batteries instead of adding more strain onto the electric grid.”