We recently compiled a list of the 7 Cheap Solar Stocks To Buy According To Hedge Funds. In this article, we will look at where Shoals Technologies (NASDAQ:SHLS) ranks among cheap solar stocks to buy according to hedge funds.
Global Solar Energy Market
Solar systems utilize photovoltaic effects to capture and convert solar radiation into forms of energy that can be used for residential, commercial, industrial, and even utility-scale applications. According to a report by Precedence Research, the global solar energy systems market is valued at $255.40 billion in 2024. It is expected to reach around $1.14 trillion by 2034, growing at a CAGR of 16.4%. The solar energy systems market has experienced rapid growth and transformation in recent years due to increasing global awareness of sustainable and renewable energy sources.
The Asia Pacific region dominates the market and is poised for continued growth as governments and industries focus on meeting renewable energy targets. India aims to attain 450 GW of renewable capacity by 2030 and is expected to propel the market growth in the region. According to the International Energy Agency, within 20 years, solar power in India is expected to surpass coal’s proportion in the country’s power-generating mix.
A combination of technological advancements, environmental concerns, supportive policies, and increasing consumer demand for clean and sustainable energy sources drives the growth in the North American region. The United States has seen substantial growth in residential and utility-scale solar installations and is a leading player in the North American solar energy market. In 2022, the United States added 14.1 GWh of energy storage to the electrical grid, a 34% year-over-year increase.
Governments worldwide have implemented supportive policies and financial incentives such as tax credits, subsidies, grants, feed-in tariffs, and net metering programs, which are key growth drivers in the solar panel market. However, cost and grid integration has been a major restraint for the market growth as the excess solar energy should either be transmitted back into the grid or stored in batteries for later use. Integrating solar energy into existing energy networks is technically challenging. It necessitates infrastructure to handle two-way energy flows while the costs of establishing large-scale energy storage systems are quite high, which limits the overall economic sustainability of solar energy systems.
Investment in Solar Energy Signals Bullish Outlook
BlackRock, one of the largest asset management companies in the world, is bullish on the solar market and recognizes the critical role solar energy plays in the transition to a low-carbon economy. The bank forecasts that the solar market will continue to grow rapidly in the coming years due to declining costs, increasing demand for renewable energy, and supportive government policies.
In June, the company invested $500 million in Recurrent Energy. The company has a global project development pipeline of 26 GW in solar and 56 GWh in storage and is expected to have 4 GW of solar and 2 GWh of storage in operation in the U.S. and Europe by 2026.
The company’s investment in Recurrent Energy will support its continued growth and development, enabling it to advance its high-value project development portfolio and transition from a pure developer to a developer plus long-term owner and operator in select markets. This investment also underscores its commitment to supporting companies driving innovation and growth in the solar industry.
The solar energy systems market is poised for rapid growth over the next decade, driven by increasing demand for sustainable energy sources and supportive government policies. While cost and grid integration challenges remain, technological advances and economies of scale are expected to drive down costs and improve efficiency. With that in context, let’s take a look at the 7 cheap solar stocks to buy according to hedge funds.
Our Methodology
To compile our list of 7 cheap solar stocks to buy according to hedge funds, we used clean energy ETFs, online rankings, and stock screeners to compile an initial list of 20 solar energy stocks. From that list, we screened for companies that are trading at a forward P/E ratio of under 20, as of September 22. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Shoals Technologies (NASDAQ:SHLS)
Number of Hedge Fund Investors: 33
Forward P/E Ratio as of September 22: 16.94
Shoals Technologies (NASDAQ:SHLS) focuses on solar energy and electric vehicle solutions. The company has successfully deployed its products in more than 62 GW solar systems worldwide and has an impressive intellectual property portfolio with over 66 patents. Shoals Technologies (NASDAQ:SHLS) is particularly known for its innovative electrical balance of systems (EBOS) solutions, which have set a new standard in the industry.
Shoals Technologies’ (NASDAQ:SHLS) innovative Big Lead Assembly (BLA) System represents a significant advancement in solar installation technology. It integrates multiple components into a single, streamlined unit. By minimizing the need for combiner boxes and wiring, the BLA System offers a 43% reduction in installation costs and a 20% reduction in material costs. This innovative solution not only enhances efficiency but also improves safety, setting a new benchmark for electrical balance of systems (EBOS) solutions.
Shoals Technologies (NASDAQ:SHLS) has developed various innovative solutions to streamline solar and electric vehicle (EV) installations. The company’s Interconnect System is designed to simplify the connection of solar panels to the grid, minimizing the need for specialized labor and enhancing overall efficiency and reliability. Additionally, Shoals Technologies’ (NASDAQ:SHLS) patented connectors and wire harnesses with in-line fuses offer a cost-effective solution for solar installations, reducing production and transportation costs.
Shoals Technologies (NASDAQ:SHLS) trades at a price-to-earnings (P/E) ratio of 16.94, a 15.19% discount compared to the sector median of 19.98. As of the second quarter, a total of 33 hedge funds hold a stake in the company, with a combined value of $208.17 million. Joho Capital is the largest shareholder and holds stocks worth $60.16 million as of June 30.
Overall SHLS ranks 4th on our list of the cheap solar stocks to buy according to hedge funds. While we acknowledge the potential of SHLS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article was originally published on Insider Monkey.