SolarEdge Needs Its Powerful USP to Charge Up Sales

Solar stocks are getting a lot of attention. The prospects of an eco-friendly administration is increasing interest in renewable energy. SolarEdge (NASDAQ:SEDG) is one of the shining stars of the solar sector. In just the last six months, SEDG stock is up 91%. And since the beginning of the year, the stock is up more than 165%.

Piggy bank in front of solar panel infrastructure
Source: Shutterstock

However, investors may be buying the story behind the stock without looking at the actual numbers of the company. This is not unusual for growth stocks, but SolarEdge is trading at over 80x earnings. And in the last month, it seems that the market is taking notice. From a closing price of $309.80 in mid-October, SEDG stock is down about 12%.

With the possibility of an end-of-year vaccine rally, is it time for you to jump into SolarEdge stock? Let’s take a closer look.

The Bullish Case for SEDG Stock

If you’ve read my articles in the past then you know I’m a big fan of companies that have a unique selling proposition (USP). For the uninitiated, a USP is a distinct reason, beyond price, for consumers to buy a company’s reason.

A USP helps elevate a company’s products from being a commodity. For an industry like solar energy this kind of differentiation will make a difference. In the case of SolarEdge, they have invented an “intelligent inverter solution” to change the way a traditional solar photovoltaic (PV) system harvests and manages energy.

Each SolarEdge PV module (panel) connects to a power optimizer (i.e. an intelligent electronic chip). In this setup, the solar panels are not interconnected as is the case in traditional PV systems. This means that if one panel is underperforming for whatever reason, the rest of the panels will be unaffected.

SolarEdge has other benefits such as an advanced monitoring system and other integrated energy solutions for consumers including a dedicated electric vehicle charger.

A Distracted Administration

In making a case for SunPower stock (NASDAQ:SPWR), which could have just as easily been SEDG stock, Ian Cooper noted the following:

Plus, we have to remember, he (Joe Biden) wants to “upgrade four million buildings and two million homes over four years to meet new energy efficiency standards,” as noted by The Conversation.

This is both a reason and a cautionary tale for buying solar stocks at this moment. It’s true that President-Elect Biden may sign an executive order on his first day that puts the United States back in the Paris Climate Accord.

However, the phrase “if ifs and buts were candy and nuts” comes to mind. I’m confident that solar stocks are going to reward investors over the next 10 years. I’m just not as inclined to believe it will happen next year.

Administrations tend to get off to slow starts. And the incoming Biden administration will have to deal with the novel coronavirus pandemic and its economic fallout. With vaccines not likely to be widely available until spring of 2021 at the earliest, this will be an issue that consumes the first 100 days, if not beyond.

An ETF May Be a Better Choice

Let’s say SolarEdge’s fourth-quarter revenue comes in at the high end of its forecast of between $345 and $365 million. That will still leave the company’s revenue about 13% lower on a year-over-year basis. And it would be about 15% below the revenue SolarEdge was generating when the stock price was half of what it is today.

Yes you can say it’s a growth stock and if you wait for the company to realize the revenue you’ll be too late. But are you really anxious to pay that kind of a premium for a company that is likely going to be facing a consumer who may be years away from buying into the company’s value proposition.

If you have a solar itch to scratch, I suggest looking into the Invesco Solar ETF (NYSEARCA:TAN).

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for InvestorPlace since 2019.

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC