Renewable energy stocks have teased investors with their promise for years. On the one hand, it’s easy to dream on the sector’s growth potential given the need to transition the global economy away from its current fossil fuel-based approach to a more sustainable one. According to one estimate, the world’s developed economies need to invest a staggering $10 trillion in the coming years to make the switch. However, despite all the investments in the sector, most clean energy stocks have significantly underperformed the market over the years.
Two factors have driven this underperformance: intense competition and weak financial profiles. With so many companies focused on doing the same thing, the industry has fought against itself for growth opportunities, which has hurt investment returns. Meanwhile, most clean energy companies focused on growing as fast as they could despite the lacklustre returns. As a result, many stretched themselves too thin, putting pressure on their balance sheets and stock prices and burning investors in the process.
A small group of renewable energy companies, however, have thrived despite the sector’s issues. That’s allowed them to consistently create value for their investors over the years.
One of the defining characteristics of these outperformers is that they aim to grow the value of their company, not just its size. Thus, those who want to invest in renewable energy stocks should seek out companies focused on this pursuit.