With a daily loss of -25.38% and a 3-month loss of -68.46%, SolarEdge Technologies Inc (SEDG, Financial) recently traded at $85.05 per share. Despite these losses, the company's Earnings Per Share (EPS) stands at 5.17. This raises the question: Is SEDG significantly undervalued? To answer this, we delve into an in-depth valuation analysis of SolarEdge Technologies (SEDG). So, let's get started.
Company Introduction
SolarEdge Technologies Inc 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. SolarEdge Technologies caters to various solar market segments, from residential to commercial and small utility-scale solar installations. The company sells its products directly to solar installers, engineering, procurement, and construction firms, and indirectly through distributors and electrical equipment wholesalers. Non-solar products targeting energy storage and e-mobility are also part of the company's portfolio.
Comparing the stock price with the GF Value, an estimation of fair value, we observe a significant disparity. This disparity paves the way for a deeper exploration of the company's value, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. It is calculated based on three factors: historical multiples at which the stock has traded, a GuruFocus adjustment factor considering the company's past returns and growth, and future estimates of business performance.
Our analysis indicates that SolarEdge Technologies (SEDG, Financial) is significantly undervalued. GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 85.05 per share, SolarEdge Technologies stock is believed to be significantly undervalued.
Because SolarEdge Technologies is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully 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 1.43, which is worse than 57.14% of 903 companies in the Semiconductors industry. GuruFocus ranks the overall financial strength of SolarEdge Technologies at 8 out of 10, indicating that the financial strength of SolarEdge Technologies is strong.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is generally a safer investment than those with low profit margins. SolarEdge Technologies has been profitable 8 over 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 60.44% of 953 companies in the Semiconductors industry. Overall, the profitability of SolarEdge Technologies is ranked 8 out of 10, indicating strong profitability.
Growth is probably the most important 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 74.37% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is -0.9%, which ranks worse than 78.19% of 775 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 10.85.
Conclusion
In conclusion, the stock of SolarEdge Technologies (SEDG, Financial) is believed to be significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 78.19% of 775 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
