Solar stocks are heating up, because it has become abundantly clear on Wall Street that solar is the backbone of tomorrow’s clean energy powered world. To play this emerging solar megatrend, investors should consider charging up their portfolio with SolarEdge (NASDAQ:SEDG) stock.
In a nutshell, SolarEdge is a leading solar company that provides the nuts-and-bolts technology hardware that optimizes the performance of solar panels. They are the best in the world at doing so, and have robust visibility to being one of the biggest and brightest solar tech providers over the next decade, during which this niche industry will takeover the multi-trillion-dollar global energy market.
As that happens, SolarEdge will power enormous revenue and profit growth — the likes of which will power equally enormous gains in SEDG stock.
Sure, the stock has had a huge run-up in 2020. Shares are up 150% this year alone. That’s a big rally. But it’s just the beginning of a much longer, much bigger rally in a leading hypergrowth solar stock with tons of potential.
Here’s a deeper look.
Power Optimizers for the Win
What exactly are the nut-and-bolts technology hardware that SolarEdge makes that improves the performance of solar panels?
It’s a broad suite of intelligent energy products. But at the core are SolarEdge power optimizers.
Long story short, traditional solar systems comprise string and central inverter technologies, which suffer from a “weakest link” problem. Because those systems all run through one inverter, they are set up in a way that when one module goes down, the whole system goes down. Perhaps worse yet, solar systems with central inverters most usually exhibit systemwide power performance consistent with the power performance of the poorest performing module in the system, meaning almost none of the modules in this system are operating at full power.
Basically, traditional solar systems with central inverter technology exhibit exceptionally suboptimal performance.
Power optimizers were made to fix this “weakest link” problem.
Power optimizers are basically intelligent electronic chips placed on each module, separately, to monitor, track, and adjust where necessary the power output of each individual module. In so doing, power optimizers sperate the system from the module, and keep each module running at its unique MPP, or maximum power output.
Power optimizers are the future technology backbone of solar. Almost every solar panel at scale will be outfitted with solar panels to improve performance. But most panels today do not have optimizers. Therefore, there is ample room for optimizer sellers — like SolarEdge — to grow share in the booming solar market over the next decade.
Of course, that’s a bullish set-up for SEDG stock.
The Leader in Its Space
Of course, they are multiple microinverter and power optimizer sellers in the solar industry.
But SolarEdge reigns supreme.
According to IHS Market, SolarEdge is the top solar inverter supplier in the world, based on revenues and wattage. The company’s dominance isn’t slipping. Just look at this chart from Wood Mackenzie. SolarEdge has grown its share of the U.S. Residential Solar Inverter Market from near-zero in 2013, to over 60% in 2019 — going from fifth-largest player in the space, to the single largest player by a mile.
Because SolarEdge has the best microinverter and power optimizer technology in the game, and is setting the gold standard for solar panel performance across the U.S.
SolarEdge should be able to couple it’s first-mover’s advantage with market-leading resources — the company has over $1 billion in cash on the balance sheet, about 400 full-time employees, and a $10+ billion market-cap — to sustain its technology advantage for the foreseeable future.
So long as the company does hang on to that advantage, the future will remain very bright SEDG stock.
Huge Upside for SolarEdge Stock
Thanks to falling costs, improving technology, increasing legislative support and shifting consumer demand, the solar industry is on the cusp of enormous growth over the next few years.
The IEA sees global installed solar capacity growing by more than 150% into 2025, with solar turning into the largest energy source in the world sometime this decade. From there, it’s only a matter of time before solar power becomes globally ubiquitous.
In other words, solar is an industry that will see install capacity consistently grow by 10% or more for the next 10 to 15 years.
As the technology backbone of this industry, SolarEdge should be able to (at the very least) match this 10%-plus growth for the next 10 to 15 years, and more likely best it with something like 15%-plus growth thanks to international and market share expansion.
Against that backdrop, you could easily see SolarEdge turn into a $10+ billion company, with 20%-plus operating margins and $2+ billion in net profits.
A market-average 20X multiple on that implies a future market cap of potentially $40+ billion for SolarEdge — and that may prove conservative, considering many of today’s largest electric utility companies features $70+ billion market caps.
Either way, SEDG stock has big long-term upside potential.
Bottom Line on SEDG Stock
SolarEdge stock is a long-term winner that’s a worthy addition to any investor’s portfolio.
Fair warning: The near-term may be choppy. SEDG stock has already had quite the run-up. But, this choppiness will settle, and in the long run, the stock is a potential multi-bagger.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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