Back to the complete issue
Monday, 22 February 2021

Climate stocks are overheating

Are we in the midst of a global renewables bubble? Climate stocks are overheating as investors get more bullish on renewable energy companies looking to capitalize on the shift by policymakers and consumers towards environmentally-friendly products, analysts tell the Financial Times.

The historic post-corona rally in US stocks has been particularly pronounced in the renewables sector. The S&P Global Clean Energy index — which measures the share prices of 30 renewable energy companies — has soared over the past year, nearly doubling in value. Companies are now valued at 41x their projected profits.

By comparison: Blue chip US companies have gained 16% over the past 12 months.

This is all looking pretty frothy: “I think we're 100% in a green bubble,” said Gordon Johnson, CEO of GLJ Research. “Pretty much every solar company I cover, their numbers got worse and the stock, like, tripled . . . This is not normal.”

Day traders like the solar stocks: US solar firm SunPower has seen its share price surge after retail traders bought into the stock — a play against hedge funds that have shorted the company. And Orsted — Denmark’s largest energy company — has seen its share value triple in the past three years despite only seeing small profit growth.

This is partly being driven by policymakers, which over the past year have doubled down on commitments to reduce emissions and focus on a green-led economic recovery from the pandemic. The Biden administration has said it is aiming for the US economy to reach net-zero emissions by 2050 while China has pledged to become carbon neutral by 2060.

But also by central banks: The tns of USD in liquidity deployed by central banks last year has caused asset prices everywhere to spike, leading investors and economists to warn that the frenzied buying activity is pushing financial markets into bubble territory.

This may lend credence to oil majors' concerns that non-financial renewable assets are getting more expensive. Total CEO Patrick Pouyanné had said last week that renewables assets were overvalued, often getting up to 25x earnings.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of Commercial International Bank (tax ID: 204-891-949), the largest private-sector bank in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; and Act Financial (tax ID: 493-924-612), the leading activist investor in Egypt; and Abu Auf (tax ID: 584-628-846), the leading health foodmaker in Egypt and the region.