Despite a daily gain of 3.1%, SolarEdge Technologies Inc (SEDG, Financial) has experienced a significant 3-month loss of -35.72%. The company's Earnings Per Share (EPS) stands at 5.17. The question that arises from these figures is whether SolarEdge Technologies (SEDG) is significantly undervalued. This article aims to provide a comprehensive analysis of the company's valuation. Read on to gain insights into the financial health, profitability, and growth prospects of SolarEdge Technologies.
About SolarEdge Technologies
SolarEdge Technologies Inc designs, develops, and sells direct current optimized inverter systems for solar photovoltaic installations. The company caters to various solar market segments, from residential to commercial and small utility-scale solar installations. They sell their products directly to solar installers, engineering firms, and indirectly through distributors and electrical equipment wholesalers. SolarEdge Technologies also offers non-solar products targeting energy storage and e-mobility.
With a current share price of $183.98, SolarEdge Technologies has a market cap of $10.40 billion. However, the GF Value, an estimation of the company's fair value, stands at $484.99, suggesting that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from a proprietary method. The GF Value Line gives an overview of the fair value at which the stock should ideally be traded. It's calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to the GF Value, SolarEdge Technologies (SEDG, Financial) is estimated to be significantly undervalued. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because SolarEdge Technologies is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength of SolarEdge Technologies
Investing in companies with poor financial strength can result in a higher risk of permanent loss of capital. It's essential to review a company's financial strength before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding a company's financial strength. SolarEdge Technologies has a cash-to-debt ratio of 1.47, which is lower than 55.25% of companies in the Semiconductors industry. Despite this, GuruFocus ranks the overall financial strength of SolarEdge Technologies at 8 out of 10, indicating strong financial health.
Profitability and Growth of SolarEdge Technologies
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. SolarEdge Technologies has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $3.70 billion and Earnings Per Share (EPS) of $5.17. Its operating margin is 10.04%, which ranks better than 55.94% of companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of SolarEdge Technologies at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of SolarEdge Technologies is 23.5%, which ranks better than 74.63% of companies in the Semiconductors industry. However, the 3-year average EBITDA growth rate is -0.9%, which ranks worse than 78.31% of companies in the Semiconductors industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, SolarEdge Technologies's ROIC was 9.82, while its WACC came in at 11.22.
Conclusion
In conclusion, the stock of SolarEdge Technologies Inc (SEDG, Financial) is estimated to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 78.31% of companies in the Semiconductors industry. For more information about SolarEdge Technologies stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
