Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
It's been a terrible month to be a solar investor. No matter where you look in the industry stocks are crashing, and there seems to be no good reason why. First Solar (FSLR -1.46%) is leading the crash today, falling 8.5% on absolutely no bad news at all.
So, for those of you who are solar investors or are looking to buy solar stocks, let's take a step back and look at where the industry is and why I think now is the time to buy solar stocks.
A sell-off for no reason in a growth industry
One thing that's clear is that 2014 has been nothing but rosy for the solar industry, especially here in the U.S. GTM Research predicts that solar installations will grow 36% this year to 6.5 GW in the U.S., and industry experts predict similar growth globally to 50 GW of new capacity.
First Solar alone expects to generate $3.7-$4.0 billion in revenue this year and earn $2.40 to $2.80 per share. Even Wall Street has been increasing earnings estimates for the third and fourth quarter over the past 90 days.
Solar energy is now so cheap that entire communities are going solar. Image source: SunPower.
SunPower (SPWR -1.02%) is also down over 8% today on absolutely no news. This is despite the company increasing production 20% annually over the next three years and being the industry leader in panel efficiency. Like First Solar, it's profitable and has been crushing Wall Street's estimates over the past two years.
Even market darling SolarCity (SCTY.DL) is down 4% today despite announcing a loan program yesterday and continuing to grow installations nearly 100% annually.
These three companies are leaders in the solar industry, and their collapse over the past month has been driven by the market's move lower and even falling oil prices, which don't fundamentally change the value proposition of solar.
Why this is the time to buy
Whether you're looking at First Solar, SunPower, or SolarCity the market is now giving a great discount on these stocks, which is a buying opportunity for you. First Solar is trading at just 12 times forward earnings estimates, and with technology improvements it should see improved profitability over the next three years. SunPower is trading at 17 times forward estimates, which doesn't include over 600 MW of projects it's building on the balance sheet in anticipation of launching a yieldco. SolarCity has the No. 1 market share in the booming residential solar market with $3.3 billion in contracted payments and an estimated $1.8 billion in retained value.
All three of these companies are well positioned in a fast-growing solar industry, and they're trading as if they won't grow at all. I think that makes a great buying opportunity for investors who have a long time horizon and can wait for these companies to show their true value in solar.
