Renewable energy is the future. Amongst renewable energy, solar is one of the most prominent, recently becoming much more accessible to households and producing energy efficiently and for a low cost. The potential solar has as an energy of the future has been widespread, making the solar space one of the fiercest sectors in which to compete. Companies have to take on losses for market share and use billions on research and development, with some companies risking a decline in performance or even going bankrupt. Below are three solar stocks to sell.
Canadian Solar (CSIQ)
Canadian Solar (NASDAQ:CSIQ), a prominent player in the renewable energy sector since 2001, has garnered attention for its global presence with over 110GW in solar module shipments and an extensive 3GWh in battery storage shipments. However, a combination of ESG issues and poor financial metrics make the company an unviable part of investors’ portfolios. Canadian Solar has drawn scrutiny for its link to solar farms near Uyghur internment camps, raising serious ethical concerns. The company’s reported involvement with polysilicon manufacturer GCL-Poly, a company associated with forced labor in its Xinjiang subsidiary, adds another layer of complexity to the controversy.
Concerns also arise from its relatively high debt levels, with a total debt of $3.3 billion. Its debt-to-equity ratio of .40 indicates significant leverage, which may pose risks, especially if the market conditions change. Additionally, the profit margin of 4.48% and return on equity of 16% suggest the company’s profitability is average. On the technical side, Canadian Solar presents mixed signals. The price-to-earnings ratio of 9.69 and price-to-sales ratio of 0.38 are relatively stable, indicating a reasonable valuation. However, the price-to-book value ratio is more volatile at 1.11, signaling potential uncertainty about the company’s intrinsic value. These troubling fundamental and technical metrics make Canadian Solar a risky investment.
Xinyi Solar Holdings (XNYIF)
Xinyi Solar Holdings (OTCMKTS:XNYIF) is a Chinese investment holding firm primarily involved in overseeing and running solar farms through its subsidiary companies. It derives its revenue by selling electricity to subsidiaries of the State Grid. The company manages several solar farms, including Jinzhai Solar Farm, Sanshan Solar Farm, Nanping Solar Farm, Lixin Solar Farm, Binhai Solar Farm, HongAn Solar Farm and Wuwei Solar Farm, with their locations primarily in Anhui, Tianjin, Fujian and Hubei Provinces in China. Its primary business operations are focused on the domestic market.
Unfortunately, Xinyi faces significant challenges, making it an unfavorable investment. Over the last three months, the company’s share price has plummeted by 26%, signaling concerns in the market. While return on equity (ROE) is a critical measure for assessing a company’s efficiency in utilizing capital, Xinyi Solar’s ROE, though similar to the industry average of 10.7%, does not inspire confidence. The moderate 8.8% net income growth over the past five years, coupled with a high three-year median payout ratio of 101%, suggests the company may be paying out more to shareholders than it is generating.
The company’s debt situation further casts doubt on its financial health. As of June 2023, Xinyi Solar Holdings carried HK$5.22 billion in debt, increasing from HK$4.24 billion over the past year. While it has a cash reserve of HK$833.5 million, its net debt remains substantial at approximately HK$4.39 billion. The balance sheet reveals liabilities exceed the combination of cash and short-term receivables by HK$2.61 billion, indicating potential liquidity challenges.
Sunrun (NASDAQ:RUN) is a San Francisco-based company specializing in residential solar, storage and energy services. The company offers end-to-end solutions, including design, installation, financing and maintenance of solar panels on homeowners’ roofs, providing services through lease and power purchase agreements. Sunrun also sells solar energy systems and related products to homeowners and resellers, featuring innovations like BrightBox solar power generation with smart inverter technology and home battery storage.
Sunrun has faced a substantial 60% year-to-date selloff, significantly underperforming the iShares Global Clean Energy ETF (NASDAQ:ICLN). The company’s struggles are attributed to concerns over its high leverage, making it highly vulnerable to a sharp decline in demand. Anticipating a growth slowdown due to NEM 3.0, a sell rating was issued in April, and since then, the stock has declined by 55%. Sunrun’s latest earnings release revealed a reduction in solar capacity growth for FY2023 due to sluggish demand, prompting a downgrade to a Strong Sell rating. The company’s consistently reported losses, negative EBIT and a historic high of $9.5 billion in net debt raise concerns about its solvency, especially given its profitability.
In 3Q FY2023, Sunrun reported mixed earnings results, beating non-GAAP EPS estimates but facing a 10.9% year-over-year decline in total revenue. Customer additions saw a 5% year-over-year decline, marking the first negative growth in the company’s history. Specific segments, such as Purchase Customers, experienced substantial drops, indicating a significant deceleration in demand growth. The Solar Energy Capacity Installed growth in 3Q FY2023 narrowed to just 1% year-over-year, down sharply from 20% growth the previous quarter. Sunrun’s high leverage and potential solvency risks and a contraction in valuation multiples suggest caution for investors considering the stock, even with recent share price declines.
On the date of publication, Tomas Levani did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.