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Why Solar Stocks Plunged Over 10% Wednesday

By Travis Hoium - Updated Mar 12, 2020 at 7:28AM

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The selloff didn't spare the solar industry.

What happened 

Shares of solar stocks took a hard hit Wednesday, as the markets plunged and investors fled from renewable energy stocks.

Vivint Solar (VSLR) fell 14% at close, SolarEdge Technologies (SEDG -0.25%) ended down 9.3% after trading down 13% earlier in the day, First Solar (FSLR 0.72%) was down 9.4%, Sunrun (RUN -1.63%) dropped 10%, and SunPower (SPWR -0.79%) fell 9.4% after trading down 10.4% shortly before close. 

There's no question that the market's drop affected solar stocks disproportionately because they're higher volatility than the market overall. Solar stocks will often trade short term with their oil and gas rivals, but long term that's not what's going to drive solar stocks. 

Large solar and wind installations with an urban background.

Image source: Getty Images.

So what

The first thing to keep in mind is that solar companies aren't correlated with traditional energy stocks like oil and gas. They may compete indirectly, but solar energy is typically put on a homeowner's roof or a large utility-scale solar installation, which will both compete with the electric grid overall. But with energy stocks on the decline, sometimes the baby (solar stocks) gets thrown out with the bathwater (energy stocks). 

What will drive solar company performance long term will actually be interest rates, and that's actually a tailwind for the time being. Ten-year and 30-year treasury rates have been trading with under a 1% yield, and that means rates are cheap for solar developers to take out debt to build projects. That should increase demand long term. 

What I would keep an eye on is whether or not debt markets start to freeze up. Developers do require the flow of debt financing to pay for solar developments, so if markets freeze, developers like Vivint Solar, Sunrun, and SunPower could feel a pinch. But for now, that's not what we're seeing in the market. 

Now what

The market's macro-dynamics are pushing solar stocks lower, and have been for the last few weeks. But long term, the industry's underlying fundamentals haven't changed. The amount of solar power being installed each year is growing, and it's becoming more compelling for everyone from homeowners to large utilities to consider solar energy. As the industry grows, these leaders should benefit. 

For long-term investors who are willing to ride the ups and downs of the stock market, now looks like a great opportunity to start getting bullish on solar stocks. There may be volatility ahead, but over the next 10 to 20 years, these are the companies that are going to disrupt the energy industry across the world. 

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Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$66.70 (0.72%) $0.47
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$15.77 (-0.79%) $0.12
Vivint Solar, Inc. Stock Quote
Vivint Solar, Inc.
VSLR
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$24.50 (-1.63%) $0.41
SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
SEDG
$270.60 (-0.25%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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