The U.S. International Trade Commission has recently opened an investigation on certain solar imports. This move could lead to a crackdown on the anti-competitive practice of selling imports at prices below the cost of production, subsidized by the Chinese government. This turn of events could stop the price wars with overseas suppliers that has hurt the solar energy industry, and potentially help companies like SolarEdge Technologies (NASDAQ:SEDG) become a potential value play stock for investors looking for a foothold in the solar market.
SolarEdge has experienced margin compression, leading to a decline in earnings, which drove the share price down over 86% in the past year. The stock trades at a discount compared to its peers, potentially making it an intriguing option if industry dynamics return to a more competitive footing.
SolarEdge Innovates
SolarEdge is an energy development company recognized for its innovation, such as an inverter solution that aims to revolutionize power management in photovoltaic (PV) systems. Since 2010, the company has shipped over 53.6 Gigawatts of its inverter systems to 140 countries, positioning itself as a leading provider of inverter solutions in the PV market.
The company unveiled its next-gen three-phase solar inverter and a dedicated home battery for the European residential market at the recent Intersolar 2024. Leveraging the latest advancements in Silicon Carbide (SiC) switches, the new inverter is lighter and smaller per kW. It exhibits improved efficiencies and power density, offering the highest efficiency in its current category.
SolarEdge’s Recent Financial Results & Outlook
SolarEdge Technologies recently revealed its financial results for the first quarter of 2024. The company reported a revenue of $204.4 million, surpassing analysts’ estimates of $194.67 million. However, this marked a decrease of 35% from the previous quarter’s $316.0 million and a significant drop of 78% from the same quarter last year. Non-GAAP gross margin was -6.5%, a clear shift from the previous quarter and the same quarter last year when the gross margin was in positive territory. Earnings per share (EPS) of -$1.90 missed analysts’ expectations of -$1.55.
For the quarter, the company used $217.0 million in operating activities, a significant increase from the $139.9 million used in the previous quarter contrasted with the $7.9 million generated in the same period last year. Additionally, the company bought back 506,000 shares of its common stock at an average price of $65.67 per share, costing roughly $33 million as part of its Board-approved share repurchase program. The company’s net cash, bank deposits, and marketable securities of $316.3 million at quarter-end was significantly reduced from $634.7 million at the end of 2023.
Management has issued guidance for Q2 2024, forecasting revenue between $250 million and $280 million, with a non-GAAP gross margin fluctuating between -4% and 0%. Operating expenses are projected to lie between $116 million and $120 million.
What Is the Price Target for SEDG Stock?
Analysts following the company have taken a cautious stance on the stock. For example, Susquehanna analyst Biju Perincheril recently downgraded the shares from Positive to Neutral while lowering the price target from $92 to $56. He noted that competitive pressures will likely require additional price concession and expects the company’s challenges to last through the end of this year.
SolarEdge Technologies is rated a Hold overall based on the recommendations and price targets assigned by 23 analysts over the past three months. The average price target for SEDG stock is $66.50, taken from an extensive range of forecasts between $44.00 and $124.00. The average represents a potential upside of 101.45% from current levels.
The stock has been highly volatile, with a beta of 2.24. It has been on a downward trend since last summer’s peak of $288.87 to a recent five-year low of $32.54. The stock continues to demonstrate negative momentum, trading below its 20-day (43.61) and 50-day (50.98) moving averages. The shares trade at relative value territory, with a P/S ratio of 0.85x, roughly half of the Solar industry average of 1.57x.
SolarEdge in Summary
SolarEdge Technologies presents an interesting investment proposition. Despite the challenging industry conditions and its struggles with margin compression, the company’s innovation and potential for growth cannot be overlooked. While its most recent financial results were disappointing, the company trades at a discount, presenting a possible turn-around value opportunity if market conditions improve.
