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Margaret Moran
Margaret Moran
Articles (348) 

3 Clean Energy Stocks With Fortress-Like Balance Sheets

These companies have solid financials and operate in a fast-growing industry

October 28, 2020 | About:

Investors who are interested in clean energy stocks may find that many of the names in this industry have weak balance sheets. This is true for the energy sector in general, but due to the amount of research and development needed in order for renewable energy to achieve technological advancements, as well as the historical need to keep prices low enough to be competitive with fossil fuels, more than half of the industry has an Altman Z-Score below 1.81, which implies a potential risk of bankruptcy within the next two years.

However, that does not mean every clean energy stock is in the red, and those with fortress-like balance sheets could potentially provide better results for investors as they will not be dragged down by as much debt as their competitors.

According to the GuruFocus All-in-One Screener, a Premium feature, the following three solar energy stocks have an Altman Z-Score of at least 1.81, indicating that bankruptcy is unlikely. They also have positive earnings and GuruFocus financial strength and profitability ratings that score at least 6 out of 10.

SolarEdge Technologies

SolarEdge Technologies Inc. (NASDAQ:SEDG) is a photovoltaics company based in Israel. The company produces power optimizers, solar inverters and monitoring systems that are aimed at increasing the energy output of solar power arrays.

On Oct. 28, shares of SolarEdge traded around $268.43 for a market cap of $13.44 billion and a price-earnings ratio of 80.07.

GuruFocus gives the company a financial strength rating of 8 out of 10. The cash-debt ratio of 12.04 and Altman Z-Score of 13.9 indicate high financial strength. The return on invested capital is higher than the weighted average cost of capital, indicating that this is a value-creating company.

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SolarEdge has a GuruFocus profitability rating of 7 out of 10. The operating margin of 13.46% and net margin of 10.89% are outperforming 71% of competitors. The three-year revenue growth rate is 37%, while the three-year earnings per share without non-recurring items growth rate is 18.8%.

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Pioneer Investments (Trades, Portfolio) is the biggest guru shareholder of the company with 1.76% of shares outstanding, followed by Jim Simons (Trades, Portfolio)' Renaissance Technologies with 0.31% and Jeremy Grantham (Trades, Portfolio) with 0.19%.

First Solar

First Solar Inc. (NASDAQ:FSLR) is an Arizona-based semiconductor company that manufactures solar panels and utility-scale photovoltaic power plants. It also provides supporting services for its systems, including maintenance, construction, financing and end-of-life panel recycling. It is the leading global provider of utility-scale solar power systems.

On Oct. 28, shares of First Solar traded around $92.08 for a market cap of $9.74 billion and a price-earnings ratio of 98.88.

GuruFocus gives the company a financial strength rating of 8 out of 10. The cash-debt ratio of 2.29 and Altman Z-Score of 4.11 indicate decent financial strength, though the company has been increasing its debt in recent years, with its cash on hand declining over the same timeframe.

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First Solar has a GuruFocus profitability rating of 6 out of 10. The operating margin of 11.05% and net margin of 3.17% are outperforming 53% of competitors. The three-year revenue growth rate is 1%, while the three-year EPS without NRI growth rate is 35.4%.

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Pioneer Investments is the biggest guru shareholder of the company with 1.67% of shares outstanding, followed by Grantham with 0.19% and Caxton Associates (Trades, Portfolio) with 0.17%.

Xinyi Solar Holdings

Xinyi Solar Holdings Ltd. (HKSE:00968) is a Chinese investment holding company that primarily manufactures and sells solar glass. It is also involved in the operation of utility-scale solar farms and provides engineering, procurement and construction services for solar farms.

On Oct. 28, shares of Xinyi Solar Holdings traded around 12.86 Hong Kong dollars (66 cents) for a market cap of HK$106.59 billion and a price-earnings ratio of 34.92.

GuruFocus gives the company a financial strength rating of 6 out of 10. The cash-debt ratio of 0.34 is on the low end of the spectrum, but the Altman Z-Score of 6.65 indicates that the company is unlikely to encounter liquidity issues. The company increased its cash reserves and reduced its debt in the most recent full fiscal year.

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SolarEdge has a GuruFocus profitability rating of 8 out of 10. The operating margin of 40% and net margin of 29.52% are outperforming 95% of competitors. The three-year revenue growth rate is 8.8%, while the three-year EPS without NRI growth rate is 1.2%.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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