Is It Worth Investing In Renewable Energy Stocks?

Photo by Daria Nepriakhina on Unsplash

The use of fossil fuels at the international level has caused significant damage to our environment, affecting the health of millions of people and putting the future generations at very severe risks.

It is widespread to find reports that detail the foreseeable consequences of the exploitation of fossil fuels with a high polluting capacity and a harmful impact on humanity.

Even in recent years, it is prevalent to find accidents and disasters related to the oil industry in which we can see evidence of the latent risks of producing this type of energy.

Therefore, it is not surprising that different action plans prevent activities from being carried out traditionally and thereby change the way of producing on the planet.

The business models of the future

Before showing the analysis of the performance of this type of asset, it is essential to mention that business models are changing, causing many organizations to migrate their production structures to different alternatives.

It is a matter of benefit to the environment. Still, those organizations that migrate to sustainable production models will benefit from optimizing costs in their results, allowing an efficient economy of scale to become a fundamental matter for organizations.

For the year 2019, the market for services oriented to solar energy had an approximate value of 163.7 billion dollars. It is expected that by 2027 the market size will be around 200 billion dollars due to the need to improve competitiveness and increase efficiency in the business model.

Stock Analysis

Below we will analyze two securities listed on the North American market whose business models are focused on being environmentally friendly and generating value for their stakeholders.

The stock assets to be evaluated are the following:

ENPHASE ENERGY, INC.
SOLAREDGE TECHNOLOGIES, INC.

ENPHASE ENERGY, INC.

The company exists since 2006 based on a business model for installing microinverters that allows converting solar energy stored by the collection devices into alternating current for the efficient supply of electrical power.

Since its foundation, ENPHASE has delivered more than 34 million microinverters. They have registered more than 300 patents that allow them to improve the quality of their products in their portfolio. Investment in research and development has exploded since its New Zealand research center opened in 2016.

from Tradingview

In 2018 the company went through financial complications reporting losses of $ 11 million; however, as of 2019, the results have improved significantly by reporting profits of $ 161 million. In 2020, they obtained gains of $ 134 million.

The excellent performance shown by companies in earnings and cash flow is evidence that, in general, consumers are willing to change their sources of consumption for sustainable alternatives.

Therefore, it is not surprising that investors have been rewarded for entering the stock market of sustainable companies, as can be seen in the following graph:

From tradingview

In this graph, you might see that its stock market shares were quoted at the beginning of 2019 at $ 6 per share. As of July 5, the price is at $ 186 per share. We are talking about a 3,000% increase in 3 years. Not bad for stocks that until two years ago were not relevant in the stock markets.

SOLAREDGE TECHNOLOGIES, INC.

The company focuses on the business of inverters and optimizers based on stored solar energy to supply sustainable electricity for its customers.

The company currently has a presence in 28 countries. Since its foundation, they have delivered just over 70 million Optimizers and Inverters around the world. They have over 3,400 employees and have registered more than 360 patents derived from the current research and development process.

From tradingview

In the last four years, the company has increased its income level, and so has its group of profits since in 2017 it generated 84 million dollars in profits while for 2020, it obtained 140 million dollars. Even though its efficiency level has decreased from 13% to 9%, it has not stopped increasing profits.

The preceding is a complement to the factors that attract investors of this type of company since the value of the share has reported a significant increase in the last two years, as can be seen in the following graph.

From tradingview

The value of this asset at the beginning of 2019 was $ 36 and is currently trading at $ 276; this represents 660% in 2 years.

What’s Next?

Business models based on sustainable technologies represent an alternative to improve our quality of life in the present and soon.

The COVID-19 pandemic showed us that there are many changes that we need to undertake immediately if we want to think about a sustainable future and that, above all, it does not affect our existence.

Companies are aware that it is no longer just a matter of reputation or good corporate image. Social responsibility is a critical business factor of operational efficiency that can achieve better results and guarantee long-term supply chains.

According to the United Nations, the world population may reach 9.7 billion people by 2050, representing a challenge for how humans meet their energy needs.

Companies such as those analyzed in this text represent an alternative for obtaining clean energy that promotes responsible and viable consumption for the long term.

Consequently, the market for these companies appears to be very promising. The preceding also represents a niche of opportunities for investors seeking to diversify their assets within their portfolios.

Final Thoughts

Diversification is a crucial element for risk diversification, but investing in sustainable companies is not only managing the portfolio of stock assets. It also represents an opportunity to join early in companies reporting significant growth levels and are still in the process of capitalizing on their future market shares.

Green businesses are currently going through critical stages of consolidation. It is appropriate to include this type of alternatives in the analysis strategies to balance our portfolios based on the risk we want to assume in markets with high levels of innovation.

Therefore, rather than expressing an investment suggestion, the objective is to reflect on the new options within our reach as investors and understand that there are increasingly different viable options for timely risk management, guaranteeing a structure that adapts to our investment style.

Thank you very much for reading this work. I hope you like it and see you in the following publication.

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