Is SolarEdge Technologies Stock A Buy?

Is SolarEdge Technologies Stock A Buy? SolarEdge is an Israeli-headquartered developer of solar inverter systems intended for use in a wide variety of renewable energy market applications.

SolarEdge 101

The company designs and develops its own solutions and furnishes products for commercial and residential installations.

Besides its significant expertise and history in the inverter systems space, SolarEdge also operates a cloud-based platform for energy monitoring, provides post-sales services, training and installation support for its clients, and is involved in energy storage technologies including lithium-ion batteries for the electric vehicles market.

SolarEdge Has 60% Market Share

The company has in recent years come to dominate the space in the Module-Level Power Electronics market.

While it hasn’t faced particularly stiff competition in its rise to the top, it has still grown into a vertically integrated renewables powerhouse.

The company controls close to 60% of the U.S. solar market today, up from 5% in 2013, and expects to grow 25% year-on-year for the next five years.

Are Enphase & Tesla Catching Up To SolarEdge?

SolarEdge’s growth has come from its spectacular success in developing a game-changing optimized inverter in 2010.

Its market dominance arising from such innovation has been a boon for sure, although it seems unlikely – and so far not attested to by the company in its own regulatory disclosures – that it will have any other such successes in the near future. 

Balancing this assessment out however is the fact that the firm is assertively moving into new areas of revenue generation, including the expansion of its software wing (Mapper App and Set App) and its smart energy management system.

Of more pointed concern would be the brewing rivalry between SolarEdge and Tesla (TSLA). Tesla has been late to the game when it comes to solar inverter technology, but the company has grown its solar and storage operations by 199% year-on-year, as of its last reported quarterly results.

The brand recognition of Elon Musk’s flagship business is nothing to scoff at, despite the fact that SolarEdge still dominates the sector to date.

On the near-term horizon, however, is a company called Enphase (ENPH), a microinverter producer that claims to have the best inverter technology on the market. This boast appears to have merit; the company has high sales turnover and a gross margin that trumps SolarEdge’s by around 10%.

If Enphase continues to grow as it has been lately, it could soon be a material rival to SolarEdge’s pre-eminence.

SEDG Valuation & Financials Show Further Growth

The run-up to SolarEdge’s historically high share price at the start of this year has meant that its upside potential has significantly diminished.

Its high of $365.97 has slipped to around the $300 mark, with its estimated forward Price-to-Sales ratio for 2021 coming down to 8.4 from 10.13 at the same point in 2020.

This shouldn’t be a sign of alarm as revenues are expected to keep growing, and should instead be seen as a maturing of analyst’s expectations in line with the increasing stability of the company and its cash flows.

Interestingly, expectations for 2021’s earnings-per-share are expected to beat 2020’s, with the two prices quoted as 3.98 in Dec 2020 and 4.67 in 2021. Again, this underlines the fact that SolarEdge is moving from a growth-stage company and into an established player in the space.

Commercial revenues have been hit by the global Covid-19 pandemic, but residential revenues continue to grow worldwide.

Gross margins were up Q3 2020 at 32%, compared to 31% the previous quarter – and this despite the fact that operating expenses were raised over the two quarters.

SolarEdge Has A Massive Market Opportunity

The U.S. Solar market is estimated to be worth around $30 billion, and outside of the U.S. this is thought to be six times as big again.

SolarEdge is well placed to take advantage of the ex-U.S. market as it made record-breaking European sales in Q3 2020 and is expected to capitalize further on these numbers. It is also suitably placed to take advantage of the U.S. market too, with a move on the U.S. new home segment due soon to its strategic alliance with Schneider Electric.

SolarEdge can capitalize on several secular trends in the coming years. The move towards renewable energy consumption will continue apace, and producers of solar-based energy products are well placed in this regard. It is estimated that by 2050, 30% of energy demand will be met by renewables, of which 17% will come from solar.

A certain degree of U.S. market consolidation has occurred recently in SolarEdge’s favor. Huawei has left the American playing field, and the ABB Group has exited the inverter business after selling its interests to the Italian company FIMER.

SolarEdge has also been particularly aggressive and shrewd in its recent acquisitions, when in 2019 it bought out 99% of the companies formerly known as S.M.R.E Spa and I.E.T Spa, enabling the firm to merge end-to-end production for its Automation Machines Division in the U.S.

Is SolarEdge Technologies Stock A Buy? Conclusion

The outlook for SolarEdge is still good, if not a little tempered by the threat from Tesla’s solar division and other major players in the solar space.

Despite this, however, the strong tailwinds in the renewable energy space, combined with a healthy balance sheet and expansion in native and global markets make SolarEdge an enticing prospect. 

For the risk averse, the stock is a hold; for those willing to put their faith in its strong positive aspects, a mild buy. That said, a better entry price might be had by waiting a little while longer.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.