Solar stocks plummet to a three-year low as Solaredge experiences a nearly 30% drop in stock value following a demand warning.
On Friday, solar stocks plummeted due to a warning from a solar product manufacturer that demand in Europe has decreased, exacerbating the negative sentiment surrounding the renewable energy sector, which has already been struggling this year.
On Friday, the stock market tumbled 6.57%, reaching its lowest level since July 2020. The solar sector saw broad declines, with stocks falling 5.7%, 8.9%, and nearly 15%, respectively.
Solaredge's stock price dropped 28.2% on Friday after the company announced that its revenue, gross margins, and operating income in the third-quarter would be lower than expected by Wall Street. Additionally, the company forecasts "significantly lower" revenue in the fourth-quarter. CEO Zvi Lando attributed this to "substantial unexpected cancellations and pushouts" of existing backlogs from the company's European distributors due to high inventories and slow installation rates.
Lando stated that installation rates for the third quarter were significantly slower at the end of summer and in September, which is typically a period of increased installation rates.
SolarEdge, an Israel-based company, has adjusted its guidance, which is not related to the Israel-Hamas war, and its manufacturing has not been affected. SolarEdge produces inverters that convert direct current electricity generated by solar panels into alternating current electricity used in electrical grids.
The solar industry is facing challenges this year due to rising interest rates, which are negatively impacting the financing environment for U.S. solar installations. SolarEdge and the TAN ETF have both experienced significant declines, with SolarEdge down 71.1% and the TAN ETF down 40% year-to-date.
On Friday, Goldman Sachs changed its rating for Solaredge from buy to neutral, citing weak demand in Europe as a major concern for the company's future prospects. The firm believes that this issue is not just seasonal and could have a significant impact on Solaredge's performance in the coming years.
Analyst Brian Lee stated in a Friday note that after two consecutive quarters of disappointing results/guidance, it is challenging to justify the stock, as we failed to anticipate the impact of the confluence of ongoing inventory, end market demand, and now margin issues, which are likely to hinder the stock's performance for the foreseeable future, given the apparent deterioration in visibility.
—CNBC's Michael Bloom contributed to this report.
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