Another day, another big sell-off on the Nasdaq. Yesterday, shares of merging solar panel installers Vivint Solar (NYSE:VSLR) and Sunrun (NASDAQ:RUN) led the market lower, followed by similar sell-offs at solar inverter makers Enphase Energy (NASDAQ:ENPH) and SolarEdge.
Now, the good news is that so far, SolarEdge is down "only" about 4.3% as of 11 a.m. EDT. But the bad news is that everyone else is doing much worse than that: Enphase is down 8.2%; Vivint and Sunrun are down 11.2% apiece.
Is there a good reason for this? For better or for worse, the answer appears to be "no." As a general rule, most steep stock sell-offs can be traced back to one of just a handful of catalysts. Either:
- Someone on Wall Street downgraded a stock. (Believe it or not, a change of opinion by just one Wall Street analyst can often spark a sell-off.)
- Someone on Wall Street might have just lowered a price target on a stock.
- A company might report bad earnings or weak guidance.
- Or some directly relevant microeconomic or macroeconomic news might be to blame.
But we've got none of any of that today. No downgrades. No price target tweaks. No bad microeconomic news affecting Vivint or Sunrun or Enphase directly. No macroeconomic news to threaten stocks in general.
To the contrary, just this morning the Labor Department reported that the U.S. unemployment rate has been driven back down to 8.4%, and the August jobs report has come in at a stronger-than-expected 1.4 million jobs regained since the beginning of the coronavirus pandemic.
In short, there's really no reason for solar stocks in particular to be declining today -- no reason other than valuation, that is.
Over the past year, Enphase shares have more than doubled in share price, while both Sunrun and Vivint have more than tripled. At valuations that now range from 43 times forward earnings for Enphase, to 78 times earnings for Sunrun, to 80 times earnings for Vivint, all three of these stocks are priced at extremely high levels.
Investors may have been willing to accept the risk of owning such excessively valued stocks in a market that's gone nowhere but up for five straight months. Now that investors have been reminded that stocks can go down as well, though, it's the stocks that have the most gains to lose -- solar stocks -- that may be most at risk of falling farther.