It is imperative for long-term investors to identify companies that are a part of a rapidly expanding addressable market that will allow entities to grow revenue and earnings over time. So, it makes sense to invest in companies part of the clean energy space, given governments all over the world are providing incentives and subsidies driving widespread adoption of these solutions.
In the last few years, clean energy stocks such as SolarEdge (SEDG) and Enphase (ENPH) have crushed the broader markets. However, they are not immune to the market sell-off and are now trading lower in 2022.
Let’s see which solar energy stock is currently a better investment for you to add to your portfolio.
SolarEdge
SolarEdge is a solar microinverter manufacturer which recently reported its Q1 results. In the March quarter, SolarEdge sales grew by 62% year over year to $655 million while adjusted earnings rose by 23% to $1.20 per share.
While its sales growth was impressive, investors were left unhappy with the company’s bottom-line numbers. SolarEdge explained it experienced an increase in demand due to the current dynamics in Europe. The Russian invasion of Ukraine has meant several nations in the EU are now seeking alternative energy sources to meet demand.
SolarEdge had to ship several products by air which weighed heavily on profit margins.
Additionally, ongoing supply chain disruptions also impacted the availability of components.
Enphase Energy
In Q1 of 2022, Enphase Energy reported revenue of $441.2 million, compared to estimates of $432.3 million. The company stated shipments of its microinverter systems were up 16% year over year while energy storage shipments almost tripled to 120.4-megawatt hours from 42-megawatt hours in Q1 of 2021.
Enphase also reported adjusted earnings of $0.79 per share in the March quarter, compared to estimates of $0.66 per share. It expects revenue and earnings growth to continue in Q2 as well and forecasts sales between $490 million and $520 million in the quarter. At the midpoint, it indicates year-over-year growth of 60%.
The verdict
Shares of SolarEdge and Enphase Energy are trading 37% and 43% below all-time highs, respectively. SolarEdge is valued at $13 billion by market cap and is forecast to report sales of $3.55 billion in 2022 and adjusted earnings of $6.66. So, the stock is valued at 4.3 times forward sales and a price to earnings multiple of 35x. Analysts expect its earnings to rise at an annual rate of 30% in the next five years.
Enphase Energy is valued at $20 billion at market cap and is forecast to increase sales by 50% to $2.1 billion and earnings by 42% to $3.42 in 2022. So, the stock is trading at almost 10 times forward sales and 44 times 2022 earnings which is quite steep.
I believe right now, SolarEdge’s lower valuation and expansion of its profit margins make it a better buy.
SEDG shares were trading at $228.27 per share on Wednesday morning, down $5.53 (-2.37%). Year-to-date, SEDG has declined -18.64%, versus a -15.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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