Solar energy stocks got crushed again on Monday as the market sold off. The S&P 500 ended the session down 3.2%, while the Nasdaq Composite fell 4.3%. But solar stocks magnified those losses.
At their lows for the day, SolarEdge Technologies (SEDG -2.09%) was off by 12.2%, Sunrun (RUN -5.22%) was down 11.6%, and SunPower (SPWR -3.22%) was down 10.5%. They ended Monday's session down 10.5%, 9.9%, and 9.4%, respectively.
Not only was the stock market down, but West Texas Intermediate crude oil fell 6.8% Monday. In the short term, solar stocks often rise and fall along with the price of oil and that was a big dip. As the theory goes, lower oil prices make it less cost effective to switch to solar, while higher oil makes solar an even better deal. That's not really what we see in the solar industry, which rarely competes head to head with oil and has become more competitive on a price basis with fossil fuels generally for more than two decades. But that's nonetheless how traders respond.
One palpable threat to the growth of the solar industry is rising interest rates. Because a solar installation's long-term energy production is less valuable in today's dollars when interest rates are higher, rising rates can have the effect of making solar energy less competitive. But interest rates for bonds were actually down slightly Monday and in the U.S., the yield on the 10-year Treasury dipped to 3.06%.
As negative as the market's sentiment is, the first-quarter earnings reports these companies released last week showed a lot of progress. Their revenues rose and SunPower and SolarEdge reported net income, while Sunrun said it added $483 million in gross earning assets in the quarter. Operationally, they are doing well, even if there are some headwinds coming their way.
Sometimes it's important to take a step back and look at a company or industry from a "big picture" perspective. We know that solar energy is gaining market share, and that residential solar is a particular growth area. But the market is volatile, and stock gains don't come evenly. Over the last three years, each of these stocks has been profitable for shareholders, but the rides have been rocky.
Long term, I think these companies are still strongly positioned to grow and increase their profitability, but that doesn't mean volatility will stop. The energy markets can be a wild ride for investors, and right now, a broad sell-off is hitting the entire industry. But results are solid, and as long as that continues, the tailwinds will remain behind the solar industry and investors will do well over time.