SolarEdge Stock Rallies To $150 – Too Good To Be True?

SolarEdge Technologies stock (NASDAQ: SEDG) is up around 56% since the beginning of this year, and at the current price of around $149 per share, we believe SolarEdge stock has a significant downside.

Why is that? Our belief stems from the fact that SolarEdge’s stock remains almost 300% higher than the low seen in early 2018. Our dashboard What Factors Drove 296% Change In SolarEdge Technologies Inc. Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Some of this rise over the past 2 years is justified by the roughly 135% growth seen in SolarEdge’s revenues, which translated into a 72% growth in Net Income (despite a 27% drop in net margins due to slightly higher COGS and a higher effective tax rate). This led to a 54% rise in earnings on a per share basis, despite a 14% rise in the outstanding share count.

Finally, SolarEdge’s P/E ratio rose from about 19x at the end of 2017 to 31x at the end of 2019. While SolarEdge’s P/E has risen further to 49x now, given the volatility of the current situation, there is significant possible downside for SolarEdge’s multiple when compared to levels seen in the past years – P/E of 19x in 2017 and 31x as recently as 2019.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus, and the resulting lock downs and quarantine means that installing solar energy systems is just not presently a priority for people. This will lead to a drop in fresh solar installations and, in turn, hurt demand for SolarEdge’s products. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe SolarEdge’s Q2 results in August will confirm the hit to its revenue. It is also likely to accompany a lower Q3 as-well-as 2020 guidance.

If there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 49x to around 40x (the mean of current level and 2019 level), which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $120.

While SolarEdge stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

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