What happened
Shares of solar microinverter company Enphase Energy (ENPH 3.80%) fell as much as 9.7% today as the solar industry overall cratered. Shares closed the day down 8.7%.
So what
There wasn't significant news out about Enphase or any major solar energy company today, which makes the move a little mysterious. The company will announce earnings on Tuesday, April 26, 2022 after the market closes, and investors may be positioning themselves ahead of earnings.
Image source: Getty Images.
Given the high inflation and rising interest rates, this will be an important earnings report for the industry overall. Solar installations big and small are financed with significant portions of debt and with long-term power-purchase agreements. If the cost of installing solar is rising and more of the payments are going to pay for debt costs, we may see margins squeezed across the industry. That may not show up in the first quarter, but it's a threat for 2022.
Now what
The solar industry is extremely volatile in general, and there's a lot of uncertainty heading into earnings season. Commodity costs overall are up, and that should be a tailwind for the industry. But at the same time, rising materials, labor, and financing costs could hurt margins. I'm bullish on the industry long term, but given the unanswered questions facing the industry, I'll be an observer this earnings season before investing more in solar energy stocks.
