Tesla (TSLA 12.06%) attracts a lot of the attention in the renewable energy industry with its flashy products, high-profile CEO, and sky-high stock price. But the company has never reported consistent profits, and it's easy to argue that Tesla is overvalued whether you're looking at its valuation to sales, earnings, or book value.
As investors debate the future of Tesla's stock, we think there are some better opportunities in the renewable energy space. SunPower (SPWR -1.02%), Enphase Energy (ENPH -5.56%), and Brookfield Renewable Partners (BEP) (BEPC -0.09%) are all better renewable energy stocks than Tesla. Three of our contributors got together to explain why.
Image source: Getty Images.
The solar stock with upside
Travis Hoium (SunPower): No question, Tesla has been the best stock in the world of renewable energy since it went public. But with that stock performance comes higher expectations. Tesla's price-to-earnings ratio is laughable because it makes so little in profit, and its price-to-sales ratio of nearly 17 is usually reserved for software stocks, not manufacturing stocks. That's a big reason I think SunPower is a better buy than Tesla.
What I like about SunPower's current position in the solar market is that it's providing valuable solutions for customers and installers. For customers, it provides a high-quality brand and an online quoting interface that allows you to see, in less than a minute, what it costs to go solar. For installers, it provides leads through its quoting interface and offers high-efficiency solar panels (through its spinoff Maxeon Solar), installation hardware, monitoring software, financing, and now energy-storage controls that can be a new revenue stream long term. These are tools that would be difficult for any individual installer to build, so leveraging a technology company with scale and a known brand can be a valuable service. It's effectively creating a two-sided market that it can sit in the middle of.
Given that strategy, what I think makes SunPower a better stock than Tesla is the fact that it's moving toward an asset-light model in a residential and commercial market with enormous potential for growth. It's no longer a major solar manufacturer and can focus on software and services, which should generate better margins long term.
If you're looking for upside, SunPower is the better stock of the two, even if Tesla remains the bigger name in renewable energy.
Sector with a bright future
Howard Smith (Enphase Energy): Owners of Tesla (TSLA 12.06%) stock are happy the company has a cult following and a charismatic leader. Both of those things have contributed to the astounding share-price growth, along with the fact that the transition toward renewable energy is here to stay.
But for new investors looking to profit from stock ownership in the sector, Enphase Energy has measurable fundamentals as a "picks and shovels" supplier for solar energy growth.
Image source: Getty Images.
Enphase supplies microinverters for solar panels, as well as solar system tracking and storage technologies. Since it acquired the microinverter business from SunPower (SPWR -1.02%) in 2018, Enphase has shown sales and profitability that has investors' attention. Revenue growth has outpaced that of Tesla in the past three years.
ENPH Revenue (Annual) data by YCharts
And the future looks bright for the business. Solar power generation is predicted to grow by an average of 15% per year for the next 10 years, according to the International Energy Agency (IEA).
In addition to its already thriving microinverter business, Enphase began shipping its Encharge energy-storage systems in June. As solar power growth continues, so will Enphase.
Investors in Tesla see a lot of potential. Much of that, however, may be priced in. For new investors looking to profit from the solar energy boom, Enphase Energy is a leader with a runway for growth.
The best business in renewable energy
Jason Hall (Brookfield Renewable): If there's one aspect of its business that Tesla has failed to turn into something amazing, it's the solar business. After acquiring SolarCity a few years ago, Tesla has shrunk its solar-installation segment, and its solar-panel manufacturing business hasn't come close to delivering on the promise Elon Musk made with the solar roof. On one hand, that certainly lowers the bar for Tesla to deliver, right?
Maybe. But that's not the point: The point is, Tesla hasn't been a good solar business. You know what has been an amazing solar business? Brookfield Renewable. Over the past several years, the company, which makes a living by developing and operating utility-scale renewable energy-generation facilities, has delivered wonderful returns for investors. Since making solar a big priority via taking a big stake in Terraform Power in early 2017 (which it has since fully acquired), Brookfield Renewable has delivered nearly triple the returns of the SPDR S&P 500 ETF Trust (SPY -0.05%):
BEP Total Return Price data by YCharts
Yeah, I know. Tesla has delivered better than 700% in gains over the same period. The catch is much of those gains is the product of a steadily increasing valuation multiple, not meaningful gains in per-share returns. Brookfield's stock price has gone up because it has delivered strong growth and steadily paid a higher dividend to investors.
I expect, going forward, Brookfield Renewable will continue growing cash flows and raising the dividend every year, creating meaningful value for investors. Tesla's business results will also likely get better from here, but the current valuation creates a very high bar to being the better investment.
Low profile but high potential
SunPower, Enphase, and Brookfield Renewable Partners may not have the profile of Tesla, but they're still great companies with a lot of growth potential. That's why we like them so much and given Tesla's recent run-up, these may be safer options for investors if Tesla has a misstep in the next few years.
