Please ensure Javascript is enabled for purposes of website accessibility

Why Solar Power Stocks Are Crashing Again Friday

By Rich Smith - Updated Sep 4, 2020 at 2:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Solar was hot. Suddenly it's not.

What happened

Another day, another big sell-off on the Nasdaq. Yesterday, shares of merging solar panel installers Vivint Solar (VSLR) and Sunrun (RUN 4.99%) led the market lower, followed by similar sell-offs at solar inverter makers Enphase Energy (ENPH -3.44%) 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.

Woman in a hard hat holding a solar panel

"Anybody want to buy a solar stock? Anyone? Anyone?" Image source: Getty Images.

So what

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.  

Now what

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.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends SolarEdge Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
ENPH
$290.55 (-3.44%) $-10.36
Vivint Solar, Inc. Stock Quote
Vivint Solar, Inc.
VSLR
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$34.90 (4.99%) $1.66
SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
SEDG
$308.82 (-2.12%) $-6.68

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.