SolarEdge Technologies Stock To $33?

SolarEdge Technologies (SEDG) stock has fallen 9.7% during the past day and is currently trading at $46.73. Our multi-factor assessment suggests that it may be time to sell SEDG stock. We have, overall, a pessimistic view of the stock, and a price of $33 may not be out of reach. We believe there is a near-equal mix of good and bad in SEDG stock given its overall moderate operating performance and financial condition. But keeping in mind its high valuation, we think that the stock is unattractive.

Below is our assessment:

Individual stocks can be volatile and shake you out, but strategic allocation and diversification help you stay invested. Our Boston-based wealth management partner’s asset allocation approach is designed exactly for that.

Let’s get into details of each of the assessed factors, but before that, for quick background: With $2.8 Bil in market cap, SolarEdge Technologies provides DC-optimized inverter systems, energy storage, backup solutions, EV charging, and home energy management for solar PV providers, installers, and distributors.

[1] Valuation Looks High

This table highlights how SEDG is valued vs the broader market. For more details see: SEDG Valuation Ratios

[2] Growth Is Inconsistent

• SolarEdge Technologies has seen its top line shrink at an average rate of -14.2% over the last 3 years
• Its revenues have grown 31% from $901 Mil to $1.2 Bil in the last 12 months
• Also, its quarterly revenues grew 70.9% to $335 Mil in the most recent quarter from $196 Mil a year ago.

This table highlights how SEDG is growing vs broader market. For more details see: SEDG Revenue Comparison

[3] Profitability Appears Very Weak

• SEDG last 12 months’ operating income was $-230 Mil representing operating margin of -19.4%
• With cash flow margin of 8.8%, it generated nearly $104 Mil in operating cash flow over this period
• For the same period, SEDG generated nearly $-405 Mil in net income, suggesting net margin of about -34.2%

This table highlights how SEDG profitability vs broader market. For more details see: SEDG Operating Income Comparison

[4] Financial Stability Looks Very Strong

• SEDG Debt was $416 Mil at the end of the most recent quarter, while its current Market Cap is $2.8 Bil. This implies Debt-to-Equity Ratio of 14.8%
• SEDG Cash (including cash equivalents) makes up $493 Mil of $2.2 Bil in total Assets. This yields a Cash-to-Assets Ratio of 22.6%

[5] Downturn Resilience Is Weak

SEDG has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• SEDG stock fell 80.9% from a high of $368.33 on 15 November 2021 to $70.33 on 9 November 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $102.24 on 19 December 2023 , and currently trades at $46.73

2020 Covid Pandemic

• SEDG stock fell 51.1% from a high of $142.20 on 20 February 2020 to $69.48 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 1 June 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read SEDG Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.