Here's How Oil Stock Volatility Is Affecting This Leading Solar Energy Company

Observe energy stocks -- both clean and fossil -- long enough, and you'll learn that periods of oil-market volatility are often accompanied by renewed enthusiasm for renewables.

The Invesco Solar ETF (NYSEMKT: TAN) is an effective tool for making that point, as recent history has confirmed. Military conflict in Iran is contributing to skyrocketing oil prices, pushing this exchange-traded fund (ETF) up 12% year to date. The fund's 2026 price action is a sequel to what was seen in 2022, when it surged 29% in the six months following Russia's invasion of Ukraine.

This stock is hot, but if oil prices decline, it could cool off. Image source: Getty Images.

As for individual stocks, SolarEdge Technologies (NASDAQ: SEDG) is strutting its stuff amid elevated oil-market volatility. Shares of the maker of residential solar inverters are up more than 36% over the past month. That's another sequel, as the stock surged in the months immediately following Russia's push into Ukraine. Now it's time to decide whether SolarEdge is flying too close to the Sun.

This solar stock may be getting ahead of itself

There's wisdom in the old Wall Street saying, "Don't fight the tape." That said, let's consider what some sell-side analysts are saying about SolarEdge. Yes, the stock has been upgraded twice this month -- first on March 10 by Bank of America, and again on March 20 by Jefferies -- but those upgrades were from "underperform" to their analysts' equivalents of "hold" or "neutral."

Jefferies didn't even raise its price target, which remains at $49. Bank of America did, boosting its call on SolarEdge to $40. However, both are well below the March 20 closing price of $51.73. That may be a sign that the stock needs a cooling-off period after its recent scintillating pace.

Perhaps adding to the case for this stock having gotten ahead of itself is the European market. Conflicts involving major oil-producing countries have a way of rejuvenating interest in clean energy.

Still, as Jefferies points out, the continent's embrace of solar and other renewables increased following the start of the Russia-Ukraine war, implying there's limited room for comparable growth on the back of the Iran conflict. Bank of America went so far as to note that SolarEdge's end markets, including Europe, are soft. That's not what prospective buyers want to hear after the shares jumped so high over the past month.

Oil can take away as quickly as it gives

Regarding SolarEdge, another old investing adage is worth remembering: "History doesn't always repeat, but it often rhymes." Whether it's mere rhyming or clear repeating, oil can take away from investors as quickly as it blesses them; it's a volatile commodity. If the Strait of Hormuz were to open today (I'm not saying it will), crude prices would likely tumble; that could claim other victims, including solar equities, along the way.

This is history some SolarEdge shareholders have already lived. Following an impressive run for much of 2022, the stock was the worst performer in the S&P 500 the following year, leading to its expulsion from the index. Maybe things won't go that way for the stock if oil prices falter over the near term, but it's a risky bet to make.

Bank of America is an advertising partner of Motley Fool Money. Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.