Why Solar Energy Stocks Dropped on Monday

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

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.

© YCharts JKS

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

© YCharts JKS Revenue (TTM)

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.

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