A global leader in smart energy technology, SolarEdge Technologies Inc. (SEDG), in Hod Hasharon, Israel, is a designer and supplier of direct optimized inverter systems for solar photovoltaic (PV) installations. By leveraging world-class engineering capabilities and with a focus on innovation, the company develops smart energy solutions.
With the solar industry powering the shift to a cleaner economy within the next 30 years, companies in this space might see substantial growth in the coming years.
However, SEDG's shares have tanked nearly 32.9% in price over the past three months and 15.1% over the past month. While the company has expanded its offerings through strategic collaborations and by delivering powertrain kits, it is struggling to stay afloat.
Here's what could influence SEDG's performance in the coming months:
Build Back Better Plan
Renewable energy investors have kept a close eye on the progress of President Biden’s Build Back Better bill proposal. According to analysts, the legislation would have been a powerful accelerator in expanding the solar industry. The proposed bill has the potential to increase solar deployment projections by 31%. However, amid rising partisan disagreement, the bill appears now to be stuck in Congress, with little clarity on when it may be passed.
Growing Competition
To expand their market share, dominant players in the solar industry, such as Enphase Energy, Inc. (ENPH), SunPower Corporation (SPWR), and First Solar, Inc. (FSLR), have dramatically enhanced their solar technology output. ENPH's rapid rise in the micro inverter-based solar technology market, for instance, may pose a threat to SEDG.
Premium Valuation
In terms of forward non-GAAP P/E, the stock is currently trading at 48.27x, which is 114.5% lower than the 22.50x industry average. Also, its 10.18x forward Price/Book is 88.3% lower than the 5.41x industry average. Furthermore, SEDG's 6.48x forward Price/Sales is 71.7% lower than the 3.77x industry average.
POWR Ratings Reflect Uncertainty
SEDG has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SEDG has a D grade for Value and Stability. The company's higher than industry valuation is consistent with its Value grade. In addition, the stock has a 1.01 beta, which is in sync with the Stability grade.
Among 19 stocks in the F-rated Solar industry, SEDG is ranked #8.
Beyond what I have stated above, one can view SEDG ratings for Quality, Growth, Momentum, and Sentiment here.
Bottom Line
While the solar industry's favorable backdrop has benefited many solar companies, SEDG has not been able to capitalize on the industry tailwinds. The stock is currently trading below its 50-day and 200-day moving averages of $278.03 and $276.93, respectively, indicating a downtrend. Furthermore, given the stock's premium valuation, we believe the stock is best avoided now.
SEDG shares fell $3.80 (-1.59%) in premarket trading Thursday. Year-to-date, SEDG has declined -16.42%, versus a -5.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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