Please ensure Javascript is enabled for purposes of website accessibility

Why Solar Energy Stocks Dropped on Monday

By Travis Hoium - Mar 29, 2021 at 4:32PM

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

A broad market sell-off is hitting solar stocks hard.

What happened 

Shares of solar energy stocks cratered in trading on Monday as investors sold off growth, technology, and high-performing stocks. It may seem like the solar industry would be a safe place with oil prices on the rise and economic activity picking up, but that's not the case right now. 

JinkoSolar Holding (JKS -2.09%) fell as much as 11.2%, Sunrun (RUN 10.67%) dropped 10.7%, and SunPower (SPWR 6.81%) was down 11.6% at its low. At 2:55 p.m. EDT shares were down 10.7%, 10%, and 10.9% respectively. 

Solar panels with wind turbines in the background.

Image source: Getty Images.

So what

There's a broad sell-off in clean energy stocks taking place today and that's driving all of these stocks lower. But there are a few industry-specific news items that investors should know about. 

One item of note is that the 10-Year Treasury yield is up again today, climbing to 1.70% as I'm writing. As early as 3:45 a.m. EDT today, the yield was 1.64%, so there's been a sharp rise during trading. And over the last three months, the yield has jumped from 0.93%. Solar companies get a tailwind from low interest rates because most of their projects are financed through long-term debt offerings, so when rates rise the margins on projects go down, and in some cases they're no longer economical to build at all. In effect, low interest rates are what drive both profit and growth for the industry. 

In the case of Sunrun and SunPower, there's also continued fear that proposed fees for homeowners with solar on their roofs will make solar installations less economical. Until the proposed utility fees are determined, that could be a risk investors aren't willing to take.

Now what

A little bit of perspective is needed when looking at today's move. First of all, shares of JinkoSolar, Sunrun, and SunPower are all up sharply over the past year, so a pullback shouldn't be too alarming when put into a long-term context.  

JKS Chart

JKS data by YCharts

Second, these companies haven't seen the kind of growth in revenue or net income that you might think of when considering growth stocks. 

JKS Revenue (TTM) Chart

JKS Revenue (TTM) data by YCharts

Given how far shares have run up, it's not surprising that investors are wondering where the growth is. 

The volatility we are seeing today is really the price of admission for solar energy stocks. Shares can be extremely volatile and it's not clear in today's business environment whether there are headwinds from rising interest rates or tailwinds from a more favorable policy environment. 

Given that there isn't any specific news out about these companies and this is a broad industry sell-off, the best reaction is probably to do nothing. This move could reverse itself tomorrow and in the long term there's still growth to be had in solar energy for those willing to wait. 

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

Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$26.44 (10.67%) $2.55
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$18.19 (6.81%) $1.16
JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
JKS
$58.94 (-2.09%) $-1.26

*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 service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

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.