SolarEdge Technologies Inc (SEDG, Financial) recently experienced a daily loss of -4.77% and a three-month loss of -53.83%. Despite these setbacks, the company's Earnings Per Share (EPS) stands at 5.17. The question arises: Is the stock significantly undervalued? This article aims to answer this question through an in-depth valuation analysis. Read on to explore the financial health, profitability, and growth prospects of SolarEdge Technologies.
Company Introduction
SolarEdge Technologies Inc (SEDG, Financial) designs, develops, and sells direct current optimized inverter systems for solar photovoltaic installations. The company's system includes power optimizers, inverters, and a cloud-based monitoring platform. It caters to a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations. As of October 2, 2023, SolarEdge Technologies is trading at $123.33, significantly below its fair value (GF Value) of $492.07, indicating that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It is 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 a visual representation of the stock's fair trading value. 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.
Given the current price of $123.33 per share, SolarEdge Technologies (SEDG, Financial) appears to be significantly undervalued. This undervaluation suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. SolarEdge Technologies has a cash-to-debt ratio of 1.43, ranking worse than 57.3% of 904 companies in the Semiconductors industry. Despite this, GuruFocus ranks SolarEdge Technologies's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. SolarEdge Technologies has been profitable 8 years over the past 10 years. Its operating margin of 10.04% is better than 60.27% of 954 companies in the Semiconductors industry. GuruFocus ranks SolarEdge Technologies's profitability as strong.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. The 3-year average annual revenue growth rate of SolarEdge Technologies is 23.5%, which ranks better than 74.37% of 874 companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate is -0.9%, ranking worse than 78.09% of 776 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to assess its profitability. Over the past 12 months, SolarEdge Technologies's ROIC was 9.74, while its WACC came in at 10.91.
Conclusion
Overall, SolarEdge Technologies (SEDG, Financial) stock appears to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 78.09% of 776 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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