Solar energy stocks were on fire in 2019. The Invesco Solar ETF, an exchange-traded fund that holds 22 of the biggest solar stocks, returned a blistering 60% through mid-December. Several solar stocks, however, generated even higher returns, with the top five all producing a triple-digit gain.
Here's a look back at what powered the five best solar-focused renewable energy companies of 2019.
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Vivint Solar: 103% total return
Vivint Solar (VSLR) expanded rapidly in 2019. Through the third quarter, the U.S.-focused residential solar panel installation company had installed 166.7 megawatts (MW) of new solar capacity, up 17.6% versus the prior-year period. That has helped power a 16.4% year-over-year revenue increase. Furthermore, because the company primarily leases these systems to customers, it has built up a significant amount of retained future value that it will realize as its customers pay their leases or purchase power from the company. It had an estimated net retained value of $10.32 per share at the end of the third quarter, up 20.4% from the prior-year period. Vivint should continue to grow its revenue in the future as these customers make their payments and it brings new ones into the fold.
Daqo New Energy: 108% total return
Daqo (DQ 0.26%) significantly expanded its operations in 2019. The Chinese polysilicon maker, which is a key material for making solar panels, is on track to produce between 39,300 million and 40,300 million tons (MT) of polysilicon this year, which would be 70% above 2018's level at the midpoint. Driving that growth was its phase 4A expansion project, which boosted the company's production capacity by 35,000 MT per year while also driving down its costs. As a result, revenue and profit have soared this year, helping power Daqo's big gain.
JinkoSolar: 119% total return
Chinese solar panel maker JinkoSolar (JKS 0.04%) delivered big results even though 2019 was largely a transitional year. The company is in the process of switching its technology over to high-efficiency mono wafers, which sell for higher prices. JinkoSolar began producing from the first phase of its expansion in the second quarter and has already reached its full capacity. It expects to complete a second phase early next year so that it can move 100% of its output to this higher-margin product. This switch has already been paying dividends, as JinkoSolar's revenue rose 8.2% during the third quarter even though shipments slipped 1.8%. Its gross margin also improved, powering much higher profit.
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SolarEdge Technologies: 152% total return
SolarEdge Technologies (SEDG 0.22%), which manufactures power optimizers for solar panels, delivered record results in 2019. During the third quarter, for example, revenue topped $410 million, up 26% sequentially and 74% year over year. It was also a record quarter for both profits and cash flow. Powering that growth has been SolarEdge's ability to win market share away from rivals with a strong product offering and sales force, enabling it to become the world's top inverter supplier this year.
Enphase Energy: 420% total return
Enphase Energy (ENPH -2.15%) smoked the competition this year, generating the biggest gains in the solar sector. The company, which makes microinverters for solar panels, delivered explosive growth this year. Its revenue soared 97% year over year while its operating income rocketed an eye-popping 495% on strong demand for its products. In addition, Enphase significantly expanded its addressable market by introducing new products, so it's on track to continue growing at a healthy rate for years to come.
Solar energy still has plenty of room to run
Solar energy finally shone in 2019. Two factors powered the sector's big gains. First, the demand for solar energy continues to heat up as costs come down and climate change concerns rise. On top of that, the industry has put more effort into growing its profitability instead of just its size. Those two factors have enabled solar companies to more briskly expand their profitability, which helped boost their stock prices.
That trend appears poised to continue in the coming years. Given that the global economy needs to accelerate its adoption of renewable energy to meet its environmental challenges, solar companies should be able to continue growing their revenue and earnings at a fast pace in the decades to come. While that doesn't mean investors can expect the sector to be quite as hot, it still has the potential to generate big gains over the long term.
