SolarEdge Technologies Inc (SEDG, Financial) recently posted a daily gain of 2.55%, despite a 3-month loss of -49.9%. The company's Earnings Per Share (EPS) stands at 5.17. Given these figures, the critical question arises: Is the stock significantly undervalued? This article delves into a valuation analysis of SolarEdge Technologies to provide an answer. We invite you to read on for a comprehensive understanding of the company's intrinsic value and its market implications.
A Snapshot of SolarEdge Technologies
SolarEdge Technologies designs, develops, and sells direct current optimized inverter systems for solar photovoltaic installations. The company's system comprises power optimizers, inverters, and a cloud-based monitoring platform. It caters to a broad range of solar market segments, from residential to commercial and small utility-scale solar installations. The company sells its products directly to solar installers, engineering firms, procurement, and construction firms, and indirectly through distributors and electrical equipment wholesalers. Additionally, SolarEdge Technologies ventures into nonsolar products targeting energy storage and e-mobility.
Understanding the GF Value
The GF Value is a proprietary calculation of a stock's current intrinsic value. It's derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $139.7 per share, SolarEdge Technologies (SEDG, Financial) has a market cap of $7.90 billion. The stock is estimated to be significantly undervalued. Given this, the long-term return of its stock is likely to be much higher than its business growth.
Examining SolarEdge Technologies' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. SolarEdge Technologies has a cash-to-debt ratio of 1.43, which ranks worse than 57.43% of 902 companies in the Semiconductors industry. Based on this, GuruFocus ranks SolarEdge Technologies's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth of SolarEdge Technologies
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. SolarEdge Technologies has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $3.70 billion and Earnings Per Share (EPS) of $5.17. Its operating margin of 10.04% is better than 60.08% of 947 companies in the Semiconductors industry. Overall, GuruFocus ranks SolarEdge Technologies's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. SolarEdge Technologies's 3-year average revenue growth rate is better than 74.63% of 871 companies in the Semiconductors industry. SolarEdge Technologies's 3-year average EBITDA growth rate is -0.9%, which ranks worse than 78.4% of 773 companies in the Semiconductors industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, SolarEdge Technologies's ROIC is 9.74 while its WACC came in at 10.96.
Conclusion
In conclusion, SolarEdge Technologies' stock is estimated to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 78.4% of 773 companies in the Semiconductors industry. To learn more about SolarEdge Technologies stock, you can check out its 30-Year Financials here.
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