Canadian Solar Vs Plug Power Stock: Which Is Best?

Canadian Solar vs Plug Power Stock: There are few industries trading in the stock market that have brought investors to a standing ovation lately – but renewable energy seems especially grim. NASDAQ’s Green Energy Index fell over 23% for March 2020, compared to the S&P’s 12.5% decline.

For clean energy companies such as Canadian Solar (solar energy) and Plug Power (hydrogen fuel cells), this isn’t the greatest news.

Both companies saw share drops of around 20% in March – was that a buying opportunity? Let’s take a closer look at these two renewable energy stocks and see which is best.

Pros and Cons of Investing Solar Stocks

Putting your money into solar is a bet on clean energy, a green world, and energy sustainability but is it profitable?

It’s not as simple as deciding to invest in solar panel manufacturers. Solar energy companies can produce a wide variety of materials and products for the solar supply chain.

A company producing large-scale products, such as government-contracted solar panels, may have received government incentives/grants but will it succeed commercially? That’s the million dollar question for investors.

To mitigate stock-specific risk as an investor, you might consider alternative energy funds or exchange-traded funds (ETFs).

These types of funds are solely focused on companies that manufacture or distribute solar energy panels or related items.

Before pushing the buy button on the next solar energy stock ticker, though, it’s worth understanding the current challenges that face solar industry companies. Sure, solar’s future is full of promise – but there’s also a few drawbacks.

Here are a few pros and cons you should consider when weighing alternative energy investments.

Pros:

• Sustainability 
• Wide tracts of land with high sunlight percentages
• Low impact on the environment
• Energy independence
• Government subsidies

In the not-so-distant past, solar energy was rather expensive. Today, prices have come down.

Also, while the first solar panels were rather bulky and difficult for the average individual to use, today’s panels and cells are much easier to handle, offer increased efficiency, and are overall more practical for the average person to implement. What does this mean?

Realistically, there’s a good buy-in potential now that could offer significant rewards later on.

That doesn’t mean there aren’t some grey clouds looming above. There are still challenges posed by solar and alternative energy investments.

Cons:

• Power only generated in the daytime
• Power storage issues
• Production requires rare earth metals – extraction and demand could pose a threat
• Disposal is an issue – materials used in electronics manufacturing that pose disposal issues are the same as in solar manufacturing. If substitute materials become available or better recycling forms are created, this could change.
• Solar arrays require a lot of space, which can cause issues such as animal habitat encroachment or disruption – if solar panel manufacturers develop technology for mass production of smaller panels, this, too, could change.

Is Canadian Solar Stock A Buy?

Good news – this company’s stock still trades fairly inexpensively when you compare its price-to-earnings ratio with the industry’s average.

Using a price-to-earning ratio is helpful in an instance like this when there isn’t really enough visibility yet to forecast Canadian Solar’s cashflow.

The industry’s average price-to-earnings ratio is around 31.46x – Canadian Solar’s is around 5.61x, which means the company’s trading at a discount in relation to others in the industry.

That said, shares of Canadian Solar are somewhat volatile currently. If the price sinks any lower, based on Canadian Solar’s high beta, future buys would be preferred.

Canadian Solar enjoys a robust outlook according to analysts and so it’s got momentum and tailwinds behind it.

At the same time, over the next two years or so, Canadian Solar is expected to dip into the negative, so near-term growth shouldn’t drive any buying decision. So, at least in the short-term, Canadian Solar seems highly uncertain.

Should You Invest in Plug Power?

On the other hand, Plug Power stock is expected to perform very well over the long term.

This most likely will be driven by its ability to offer vehicles to company warehouses. With the uptick in people shopping from home, this could prove a booming business for the industry. Add to this the unveiling of Plug Power’s new hydrogen trucks, and Power Plug could soar.

But the driving force behind more people shopping from home is both a blessing and a curse in this instance. COVID-19 has investors worried – and not just a little bit.

Many shareholders are selling their highest growth rated stocks – meaning now really isn’t the time to buy. Some say, if you already own stock in Power Plug, it could be wise to sell now and buy your shares back later when the price is lower – and when the worries over the coronavirus pandemic have waned.

Canadian Solar Vs Plug Power Stock: The Bottom Line

As both of these companies face uncertainty in the short term, long-term viability concerns, and the global economy taking a temporary nosedive for all types of energy-related industries, we have to look at both company’s fundamentals in order to evaluate them and see which one could come out the victor.

Both companies are somewhat troubled and pose risks, but one is currently profitable with a cash flow in the black – the other, seeing further debt and has even diluted its shares.

The clear winner? Canadian Solar.

Nevertheless, it’s wise to be prudent. Careful thought should be put into both of these companies before making a buy or sell decision. Because there are several concerns in the short term, potential benefits of these alternative energy stocks – such as buying because their price is currently low – could be overshadowed by the risks involved.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.