SolarEdge Technologies Inc (SEDG, Financial) recently recorded a daily loss of -5.76%, contributing to a significant 3-month loss of -62.99%. Despite this downturn, the company's Earnings Per Share (EPS) stands at 5.17, leading to a critical question: Is the stock significantly undervalued? This article aims to answer this question through a comprehensive valuation analysis of SolarEdge Technologies (SEDG). We encourage you to read on for an informed perspective on the company's true worth.
Company Introduction
SolarEdge Technologies Inc designs, develops, and sells direct current optimized inverter systems for solar photovoltaic installations. The company's system consists of 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 also has nonsolar products targeting energy storage and e-mobility. As of November 02, 2023, the company's stock price stands at $71.43, significantly lower than the GF Value of $463.11, indicating a potential undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock may be overvalued, indicating poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, suggesting higher future returns.
For SolarEdge Technologies (SEDG, Financial), the GF Value indicates that the stock is significantly undervalued. Therefore, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Hence, 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 56.19% of 904 companies in the Semiconductors industry. However, GuruFocus ranks the overall financial strength of SolarEdge Technologies at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. SolarEdge Technologies has been profitable for eight out of the past ten years, with an operating margin of 10.04%, ranking better than 61.53% of 954 companies in the Semiconductors industry. The company's profitability rank is 8 out of 10, indicating strong profitability.
Company growth is a critical factor in valuation, with faster-growing companies creating more value for shareholders. The 3-year average annual revenue growth of SolarEdge Technologies is 23.5%, ranking better than 74.26% of 874 companies in the Semiconductors industry. However, the 3-year average EBITDA growth rate is -0.9%, ranking worse than 78.04% of 774 companies in the Semiconductors industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, SolarEdge Technologies's ROIC is 9.74, and its cost of capital is 10.62.
Conclusion
In conclusion, SolarEdge Technologies' stock appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, but its growth ranks below average 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.
