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Clean energy stocks have taken center stage lately, with renewables in focus this summer amid record-setting heat waves that have highlighted the need for diverse energy sources to keep grids running smoothly. However, while the traditional energy sector has been running hot - the S&P 500 Energy Sector SPDR (XLE) is up 19.3% since June 1, compared to 7.9% for the S&P 500 Index ($SPX) - price action in the green energy space has been noticeably red.
In fact, over the past three months, the Global Clean Energy iShares ETF (ICLN) - which tracks roughly 100 stocks in the clean energy industry - has shed 11.7% of its value. And on a year-to-date basis, ICLN's decline widens to more than 18%, compared to gains of 5.6% for XLE and 17.4% for the S&P 500.
There are multiple reasons why the green energy space is struggling while oil and gas names are thriving - including rising costs, supply chain hiccups, stiff competition, and regulatory uncertainty, all of which have created a roller coaster for these stocks.
Amid this underperformance, three stocks in particular that have caught the attention of short sellers are renewable energy service provider Sunnova Energy International Inc. (NOVA), electric vehicle (EV) company Fisker Inc. (FSR), and fuel cell specialist Plug Power Inc. (PLUG). Diving deeper, NOVA's short interest ratio is 28.7%, FSR is at 42.6%, and PLUG is at 21.9% — compared to an average short interest ratio of less than 3% for S&P 500 components. This hints at a strong bearish sentiment, with short sellers betting on further downside.
But are clean energy stocks set to keep selling off? Let's explore the unique headwinds facing these three green energy stocks.
NOVA: Solar Installer Faces Pricing Headwinds
Sunnova Energy International stands out as a prominent player in the realm of residential solar and energy storage solutions, catering to customers across the U.S. and its territories. With an array of financing choices – leases, power purchase agreements, loans, and cash purchases – the company extends multiple services to homeowners seeking clean and affordable energy solutions.
At current levels, NOVA has plummeted over 51% from its 52-week high of $29.13 in September 2022, and the stock is trailing both its 20-day and 50-day moving averages.
Rising interest rates pressured the stock lower alongside many other names during the back half of 2022 - and more recently, NOVA reported a wider-than-expected Q2 loss of $86.1 million ($0.74 per share) versus expectations of $0.45 per share, with revenue arriving at $197.8 million against expectations for $211.09 million.
Looking ahead, Sunnova raised its guidance for full-year customer acquisition, but it's worth pointing out that the revenue miss was fueled by lower sales to dealers and other partners, which cratered 51% year-over-year on weaker prices.
Notably, NOVA also has negative price/earnings (p/e) and price/cash flow (p/cf) ratios, indicating the company remains vulnerable to the effects of a persistently tight Fed policy.
Given this challenging outlook, a significant number of short sellers have set their sights on the stock, aiming to capitalize on its potential decline. NOVA sports a short-interest ratio of 28.7%, with more than one-quarter of its available float sold short.
Yet not everyone sees gloom and doom on NOVA's horizon. A consensus of analysts leans toward a moderate buy, with an average price target of $30.35 – implying a steep 113% upside from its current price. Of the 22 analysts covering the stock, 17 rate it as a strong buy, two as a moderate buy, and three as a hold.
FSR: EV Stock Fails to Deliver
Fisker is a pure play on sustainable and affordable electric vehicles (EVs), particularly the Fisker Ocean SUV.
Like most other non-Tesla EV stocks, FSR has struggled significantly on the charts; the stock is down more than 58% over the past two years, and it's lost nearly 18% year-to-date.
Why the slump? It's the nature of the fierce EV market - which is dominated by titans like Tesla (TSLA), includes outsized competition from legacy automakers like Ford (F) and General Motors (GM), and features an ongoing price war in the crucial Chinese market.
But while FSR is falling way behind on deliveries, its rivals are miles ahead. Fisker's Q2 net loss of $85 million ($0.25 per share) was better than the projected loss of $0.31 per share, but revenue arrived at just $825,000 as the automaker managed to deliver only 11 vehicles during the quarter. Looking ahead, the company cut its full-year production guidance, citing supplier constraints.
Here's the math on FSR: The company has no profits or cash flow, but boasts a sky-high price/sales (p/s) ratio of 6,010.81 and a price/book (p/b) of 4.69. These ratios suggest FSR is overvalued on both revenue and assets.
Short sellers are certainly circling, with FSR's 42.6% short interest ratio ranking among the highest on Wall Street.
However, not everyone is betting against the stock. Analysts are a mixed bag, as the $10.38 average price target indicates a robust 74% upside from current levels - but the consensus rating is hold, with four strong buy ratings, two holds, and three strong sells from the nine experts following FSR.
PLUG: A Fuel Cell Leader with Accounting Issues
Plug Power leads the fuel cell industry, providing hydrogen solutions for various uses. Their products help customers cut carbon footprints and costs, plus increase productivity.
However, the stock has completely missed out on the market rally in 2023. PLUG is down 68% in the past 52 weeks and more than 30% lower year-to-date, and the stock is trading below its 20-day, 50-day, and 200-day moving averages.
A long-term overhang for the stock was a series of accounting errors revealed in March 2021, which caused PLUG to restate its revenue and quarterly losses for 2018-2020. Plug Power just settled with the SEC earlier this week regarding penalties and steps to remediate the material weakness that caused the restatement.
A more recent disappointment was Q2 earnings. PLUG's net loss of $0.40 per share was wider than the $0.27 analysts expected, but revenue of $260.2 million surpassed the consensus estimate of $237.7 million. More critically, investors keyed in on the company's production timelines for hydrogen facilities in New York, Louisiana, and Texas, which are now slated to reach full production about six months later than previously expected.
Short sellers are certainly bracing for more downside, with 21.9% of the stock's float dedicated to short interest.
However, some are optimistic about PLUG's potential. Analyst consensus leans towards a moderate buy, with the $18.38 average price target implying 116% expected upside. Twenty analysts cover the stock, and 11 rate it as a strong buy, one as a moderate buy, and eight as a hold.
The Green Energy Dilemma: Buy, Sell, or Stay on the Sidelines?
The high short-interest ratios hint that a lot of traders are banking on these clean energy stocks to go down - and judging by the serious operational challenges and share price underperformance we've discussed, it's not too hard to build a credible bearish case for these names.
But here's the twist: With short interest running so high, stocks like NOVA, FSR, and PLUG are unusually prone to sharp, quick, short-covering rallies on any positive news. That means they're not the easiest stocks in the world to bet against right now, unless you have a particularly strong stomach for volatility. For now, investors should look elsewhere to find better returns in the energy sector.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
