After a period of seeming recovery, Real Goods Solar Inc (OTCMKTS:RGSE) share price has finally bottomed. Since late last year, the firm share price took a turn for the better, rising slowly through the November period. The price rose from trading just shy of $.25 per share to trading above $.8 per share.
Readers can review the above price action in the chart below:
However, after this, the price began a slow decline to its current price. Currently, it is trading at $.39 per share.
The above has been driven by different macroeconomic factors with a bearing on the energy space. In general, the policies set in place by both the United States and China have impacted the performance of the company as well as other companies operating within the same sector. These policies have influenced factors of demand and supply therefore, most companies have taken a hit in the process.
While this is the case, the long-term prospects of some of these companies still seem to be geared towards the green zone. As such, we have opted to take a look at RGSE and establish whether these policies will have similar consequences on its performance as they have had on other entities. Moreover, the term which will be affected by the movements is also of concern to us.
Background to RGSE
Prior to evaluating these policies and their implications, let us have a look at the history of the firm so as to tell their tale to date for the sake of first-time readers.
The company was founded back in 1978 and its headquarters situated in Denver, Colorado. It has and continues to operate within the residential and small scale commercial solar space whereby employees engineer, procure and construct these gadgets across the United States. They are the sole developers of the proprietary POWERHOUSE™ Solar Shingle System.
Thereafter, they install these solar systems for the homeowners and businesses through either purchase or leasing. Currently, they are also working at marketing some of their products and seek to make sales through e-commerce so as to grow their reach across the United States.
The most recent developments, as earlier mentioned, pertain the new regulations which have continued to impact the operations of solar energy-based firms within the United States and across the globe. Other news speaks to the firm having access to a much larger financial capacity through its listing in a new market.
All these are discussed in detail below:
The Bad: Change in Macro Environment
Back in 2018, the Trump administration repealed some of the regulations which had been set to combat climate change. In order to achieve this, the administration changed most of the laws which ad been put in place to combat the same condition by the previous administration. In addition to this, the administration topped it with a 30% tariff on the import of solar panels within the United States (this was during the period when the United States was engaged trade wars with China). This further makes it difficult for solar companies to carry out their business.
To top this up, the Chinese government announced a policy shift. The government, which is a major supporter of renewable energy and provides a market to over 50% of all solar equipment across the globe, also pulled back on the subsidies which it previously offered to large scale solar farms operating within the country. In doing so, the country also disallowed firms from importing the large quantities of solar modules and equipment.
With the above happening, the supply of solar modules and equipment rose drastically, leading to a glut in the market. This further pushed the prices of the commodities down. The effect on such firms’ top lines was therefore palpable.
The Good: Stable Prices & California
In the wake of these economic conditions, the firm received some good news.
California had become the first state to rule that any new buildings should install solar systems. Following this, firms across the United States have pitched camp in California so as to ensure they obtain a piece of this pie. This is especially so given that California is expected to be the largest market for solar systems and modules within the United States; a market which is estimated will total $22.9 billion by 2025.
This was just one piece of positive news.
According to Brian Lee, a researcher at Goldman Sachs, while the solar space had suffered during the 2018 period, he foresaw the prices stabilizing over the 2019 period. Moreover, the demand for the solar equipment had also begun to improve (most likely driven by the reduced prices courtesy of the glut in the market).
In sum, the market for these products is expected to improve with time. Eventually, therefore, there is optimism that the performance and consequently the price of firms operating within this sector will improve. This thus postulates growth across the sector and specifically for RGSE.
Stronger Financial Muscle
RGSE was proud to announce that they had finally listed their shares on the OTCQX platform. Through this, the firm has much larger access to investors. As a result, they can better raise money which would allow them to further commercialize the POWERHOUSE™ Solar Shingle System.
Presently, with the Californian market growing every day, the growth in sales and brand awareness of the POWERHOUSETM system will be particularly important to the firm as it will shape their revenue growth trajectory going forward. This is positive for RGSE, one which they will need to utilize so as to grow.
While there has been some negative news affecting RGSE, it is clear that the recent positive outlook and news far outweighs the bad. The short-term impact of the price decline has already been felt and the prices are now stabilizing. Moreover, the firm now has access to capital to grow its financial muscle. Going forward, therefore, we expect only the best coming from the firm. We thus remain bullish about the stock.
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Disclosure: We have no position in RGSE and have not been compensated for this article.