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Why Alternative Energy Stocks Plunged This Morning

By Rich Smith - Mar 16, 2020 at 3:08PM

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Oil prices plunge, and so do stocks that investors view as alternatives to oil.

What happened

It's looking like it's going to be another rocky day for alternative energy stocks.

In trading circa 2:40 p.m. EDT today, shares of thin-film solar specialist First Solar (FSLR 0.03%) are down 14%. Fuel cell company Plug Power (PLUG 3.68%) dropped around 15%. Traditional solar panel company SunPower (SPWR -1.01%) is down around 13%.

Woman in a hard hat holding a solar panel.

"Can I interest you in a solar stock on sale?" Image source: Getty Images.

So what

On the bright side, though, SunPower was down more than 20% in trading earlier today, so its loss could have been greater. (On a day like today, we may have to take any good news where we find it.) So what caused all this carnage?

Oil futures markets dropped sharply in early trading Monday, and because alternative energy companies are in the business of providing alternatives to oil, their products naturally will become less attractive as oil becomes relatively cheaper. When you consider that none of the three companies named had any specific news to report this morning (or for several days prior), it seems we must draw a direct line from the plunge in oil prices to the plunge in prices of alternative energy stocks as the likely explanation for the latter.

Now what

So how much longer will these stocks remain down? I suppose one logical answer would be "So long as oil prices fall, so will the stock prices of the companies that compete with oil."

To me, however, that answer seems a bit too pat. The U.S. economy is being stressed by the novel coronavirus outbreak presently, which seems like it will be bad news for all companies -- but especially bad news for companies that are unprofitable, burning cash, and lacking sufficient financial reserves to sustain massive cash burn for a long period of time.

Plug Power, with negative profits, negative free cash flow, and negative cash on its balance sheet, fits all three of these criteria. SunPower, with $22 million in GAAP net profit over the past year but $370 million in negative free cash flow and about $700 million in net debt, gets black check marks in two of the boxes. First Solar, on the other hand, although GAAP-unprofitable and burning nearly $500 million a year in cash, has a net cash balance of $1.5 billion and seems to me the sturdiest of the three as a result.

None of which seems to have spared it the market's wrath on a day like today.

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Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$68.15 (0.03%) $0.02
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$15.65 (-1.01%) $0.16
Plug Power Inc. Stock Quote
Plug Power Inc.
PLUG
$17.18 (3.68%) $0.61

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

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