I think this is worth looking at at least.

I posted this recently and it seemed to get lost. I thought it was worth looking at at least so I’m going to repost it.

Khleb saw an Investor Business Daily story about this stock and then looked at their most recent quarterly report and found a stock which was, to use his words, growing like crazy, with good and growing margins, no debt, operating expenses falling as a percent of revenue, and with positive earnings that are also growing rapidly sequentially.

He posted this back at post 8948. The thread was just one post long. I looked at the company, whose name is SolarEdge (SEDG) and decided to take a small (but not tiny) position.

Let me tell you a little about it. This is an Israeli company that makes something called an intelligent inverter that apparently is revolutionizing how power is turned into electricity in solar systems. I don’t understand anything about it. It just had its IPO a few months ago. What I do understand is that Solar City and Tesla have both become customers, as well as other large solar companies like Vivint Solar.

I also understand figures like this from their first quarterly earnings report as a public company.

Revenue of $86.4 million, up 18% SEQUENTIALLY, and up 183% from $30.6 million a year ago. That’s REVENUE! Up 183%!

Adjusted Net of $8.7 million, up 112% SEQUENTIALLY from $4.1%, and up from a loss of $5.2 million the year before.

Adjusted Gross Margin of 27.6%, up SEQUENTIALLY from 21.6% due to increased manufacturing ability meaning less need for air shipments to keep up with orders, due to economies of scale, and due to cost reductions.

Adjusted Earnings of 20 cents, up over 100% SEQUENTIALLY from 9 cents and up from a loss of 12 cents a year ago. (I figured each of the past quarters with the same 44.1 million shares that they had after the IPO to make them comparable.

This is not without risk. The danger is that they will be become a commodity product as there is always a better technology over the horizon, but for right now, they are growing like mad.

Here are some of my notes gathered from various articles and the quarterly report.


May 2015 – March quarter results

About SolarEdge
SolarEdge provides an intelligent inverter solution that has changed the way power is harvested and managed in solar photovoltaic systems. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. The SolarEdge system consists of power optimizers, inverters and a cloud-based monitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.

Highlights of the March quarter
Revenue of $86.4 million, up 18% sequentially and up 183% year-over-year
Gross margin of 27.6%
Adj net income of $8.7 million
248 Megawatts AC inverters shipped
I am happy to report record revenues of $86 million this quarter. This is in line with our expectations of moderate growth despite seasonality, coupled with the addition of a new sizeable customer.

We expect revenue growth to continue through 2015 as originally projected. Our increased manufacturing capacity allowed us to reduce air shipments, which combined with our planned cost reduction activities, increased our gross margin. The result of these two factors drove Adj net profit to $8.7 million for the quarter, our third consecutive profitable quarter. We continued to see strong growth in the United States and Europe both in the residential and commercial markets. In the past quarter, we continued development of energy storage solutions which we expect to bring to market toward the end of 2015.

Revenues of $86.4 million, up $13.1 million, or 17.9% sequentially, and an increase of $55.8 million or 182.7% from the same financial quarter in 2014.

Gross Margin was 27.4% up from 21.5% in the prior quarter and up from 20.4% in the third fiscal quarter of 2014. Adj Gross Margin was 27.6%, up from 21.6% in the prior quarter and 20.5% in the third fiscal quarter of 2014. This growth was driven mainly by cost reduction, reduced need for air shipments compared to ocean freight and economies of scale related to the increased production volumes.

Adj net income was $8.7 million, up over 50% from $4.1 million sequentially and an increase from a net loss of $5.0 million in the fiscal third quarter of 2014.

Adj earnings were 20 cents, up from 9 cents sequentially and from a loss of 12 cents the year before. I adjusted the previous quarters for the current amount of shares (44.15 million shares).

At March 31, 2015, cash, totaled $139 million, which includes proceeds from our IPO of $135 million, compared to $27 million on December 31, 2014. We had no debt.

Outlook for the Fourth Quarter
Revenues to be within the range of $92 million to $96 million;
Gross margins to be within the range of 26% to 28%.

June 2015 - Seeking Alpha Casual Analyst

SolarEdge announced blowout results
It has an architectural advantage and is likely to continue its run in the near term.

Revenue of $86.4M and adjusted EPS of $0.20 beat the street expectations by a wide margin.

Revenue guidance for the next quarter, at $92M-$96M, is also well above consensus estimates of $82.5M.

The results and guidance are fantastic by any measure but is this company worth investor consideration given that it is a parts supplier in the near commodity solar industry? What is different about SolarEdge? Is this yet another flash in the pan inverter company or does the business model have any sustainability?

To answer these questions, we take a comparative look at the tale of Enphase - yet another inverter company IPO from the years past that ran on hype and commanded a significant market capitalization without generating much in the form of shareholder wealth for the duration of its existence.

Enphase Energy was founded around the same time as SolarEdge, in 2006, to develop new generation of inverters to overcome the limitation of centralized solar inverters that were then in vogue. As the solar market started taking off, Enphase and SolarEdge chose two distinctly different paths to solving similar set of problems.

In technical terms, there is no outright winner and both SolarEdge and Enphase are duking it out in the marketing realm to highlight the advantages of their solutions.

In terms of simplicity, the Enphase solution is arguably superior to that of SolarEdge. However, when it comes to cost benefit analysis, it is clear that SolarEdge is winning the argument with Enphase.
SolarEdge solutions have been well received by cost conscious installers. SolarCity, in specific, was an early adopter and has embraced the lower cost SolarEdge platform.

The key advantage for SolarEdge is that Enphase with its current architecture and custom cabling cannot compete with the SolarEdge solution in terms of cost. Architecturally, there is very little Enphase can do to significantly reduce the cost of its solution in the near term. This dynamic leaves Enphase with the choice of reducing its prices/margins to keep its customers or losing the customer in a quest to maintain margins.

Unfortunately for Enphase investors, given the wafer thin margins in this business, there is not much in terms of margins that Enphase can give. Consequently, there have been several customer defections from Enphase to SolarEdge. One of the high profile defections, Vivint Solar has received considerable amount of press, created a buzz about SolarEdge, and has caused many Enphase installers to take a second look at the SolarEdge offerings.

At a fundamental architectural level, it is increasingly clear that Enphase system is attractive for small systems but as the system size grows, SolarEdge becomes a more attractive alternative.
SolarEdge architecture also has another critical advantage in terms of long term maintenance. The Company’s solution reduces the number and type of active components at the panel level by shifting the failure prone parts of the string inverter into a single centralized ground level location. This considerably increases the mean time between failures, for the inverters and makes larger systems much less maintenance intensive in the long term. When a failure occurs, the problem is lot more likely to be easily serviced at the ground level instead of having to climb on the rooftop, as would be the case with Enphase.

From an installer’s view point, SolarEdge architecture is likely to have a substantially lower maintenance expense in the later years than an Enphase system. This particular attribute is a big selling point to lease/PPA vendors like SolarCity and Vivint Solar who take on long term maintenance contracts extending to 20 or 30 years.
SolarEdge’s architecture also lends itself well to module level power electronics, MLPE, that are likely to be integrated into solar panels. The MLPE integrated modules, which are also referred to as active modules, offer many key advantages to module manufacturers. We expect most manufacturers targeting the residential space to offer MLPE integrated modules in the near future. SolarEdge’s advantages in this application indicate that it could be the biggest near term beneficiary of this trend. It has already won a module level design at Trina Solar and we expect that the Company will win several more such designs in the future. For this reason, we believe that SolarEdge is likely to experience explosive growth in this market segment.
SolarEdge’s cost, reliability, and integration advantage makes it likely that the Company is going to win big at the expense of Enphase in the residential space. But does this make SolarEdge a potential long term investment?

A common misperception in the investment community is that a company such as SolarEdge which established a new category of beneficial products would have considerable staying power and pricing power. But history demonstrates this to be not true. While SolarEdge’s products are highly functional and robust, the Company is subject to high level of commodity price pressure over time.

SolarEdge is likely to win the module integration battles today. However, the power in the MLPE enabled module industry is with the module manufacturer. A module manufacturer operating on a 15% margin will do everything in its power to cost reduce the MLPE enabled modules or usurp the functionality altogether.

Given the cost dynamics of these modules, over time, we believe that semiconductor companies will win most of the panel integration designs. A high volume mixed signal semiconductor will be able to deliver a microinverter or power optimizer component solution to module vendors that is far more attractive than the system level solutions that SolarEdge offers.

Considering these dynamics, in spite of SolarEdge’s initial leadership position, we find the Company’s long term prospects questionable. However, it takes time for new competition to arrive and establish itself. In the interim, SolarEdge will have its day under the sun.

Revenue/Earnings Estimates and Valuation:

Current analyst forecasts call for revenues of $82M and earnings of $0.09 in June quarter. Given the guidance in the earnings call, we believe this view is likely to change rapidly. Our model calls for an EPS of $0.25 for FQ4.
For FY2016 ending June 2016, analysts are expecting revenues of $390M and EPS of $0.82. Our model predicts revenues around $430M and an EPS of $1.20.
At a closing price of $26.39 on Thursday, the stock is trading at a forward valuation of 22 times our estimated 2016 EPS forecasts. The current $1B market cap is over 2 times 2016 revenues.

Our view: With strong competitive position, SolarEdge is likely to be stellar near term performer. The company’s growth is likely to be meteoric with the increased adoption of the Company’s solution in the residential and commercial space and with the growth in MLPE enabled modules.

The stock is not cheap by any means. However, the company has a great near term story, earnings momentum, storied associations with Tesla and SolarCity. In other words, it has all the ingredients necessary to make it the Wall Street darling-du-jour and give it a considerable stock price momentum. We expect rapid appreciation in stock price and consequently, the stock may be suitable for speculative and nimble growth oriented investors.

The key long term risks for the company are price/margin compression and loss of key customers. Given the risk profile and commodity nature of the business we do not believe this stock is worth the consideration for a long term buy-and-hold investors.

May 2015 – Notes from Inv Bus Daily Article (summarized)
The Israel-based SolarEdge which produces optimizers and inverters to turn solar energy into electricity, went public on March 26 with an offering price of 18. Its stock has climbed since to around 39.

Its debut earnings release as a public company helped fuel the surge. In early May, SolarEdge posted quarterly revenue of $86.4 million, up 18% from the prior quarter and more than 180% year over year. Its fiscal 2015 third-quarter non-GAAP profit of 20 cents a share burned past analysts’ views for 8 cents. For the current quarter, analysts forecast EPS of 22 cents, and 54 cents for the full fiscal year.

SolarEdge is a part of IBD’s Energy-Solar industry group. It has the group’s second highest rating

What Drives The Solar Industry
Analysts anticipate robust growth for SolarEdge during this calendar year and next in the U.S., in large part because both commercial developers and homeowners are trying to complete projects before a federal tax credit for solar energy expires at the close of 2016.

The Investment Tax Credit, or ITC, is a 30% credit on solar energy systems – think of solar panels on roofs – for both homes and businesses. It isn’t known if the tax credit will be extended, or reduced if it is extended, so many Americans looking toward long-term energy savings, particularly in sun-soaked and high cost of living states, are moving with haste to capitalize on the tax breaks

The forecast is for rapid growth this year for the PV (photovoltaic) inverter market in the U.S. PV inverters convert direct-current (DC) solar-panel output to alternating current (AC) suited to the power grid. PV installations in residential and small commercial projects – a SolarEdge sweet spot – are projected to grow more than 40% this year.

This represents a huge opportunity for inverter suppliers like SolarEdge. The greatest growth is anticipated in California, Arizona, Massachusetts, New Jersey and North Carolina.

While the solar market in the U.S. is likely to hit its peak for the current decade in 2016, owing to the tax credit expiration, energy-conscious homeowners and small-business owners are expected to continue to drive growth in PV inverters. He says that from 2017 onward this decade, residential and small commercial markets are predicted to grow 15% on average annually in the U.S.

About 75% of SolarEdge’s business is in the United States.
Gilligan says that in 2014, SolarEdge ranked among the top five PV inverter suppliers in the U.S., owing in large measure to a partnership with solar industry giant SolarCity.

He noted, however, that SolarEdge is “gaining market share rapidly” on the four companies ahead of it in the 2014 rankings.

SolarEdge did not respond to IBD’s interview requests. But following its earnings release, a Roth Capital analyst said in a research report that the company had told analysts that it expects the vast majority of its sales to continue to be in the U.S. and that it “expects to penetrate the majority of the top customers in the U.S.” over the course of 2015.

Teaming With Tesla
SolarEdge also this year announced a collaboration withTesla on its Tesla Powerwall in-home stationary battery , which can store the energy from solar panels for later use.

“Together, we are taking the first step towards widespread adoption of integrated solar energy generation and storage in the residential market,” Lior Handelsman, marketing and product vice president of SolarEdge, said in a May news release.

Tesla CEO Elon Musk said in the electric carmaker’s latest quarterly conference call, in early May, that response to the battery systems has been “overwhelming.” At the time, Tesla had taken 38,000 Powerwall pre-orders and 25,000 pre-orders for its larger-scale Powerpack, the latter mostly from utilities.

Jed Dorsheimer, an analyst at Canaccord Genuity, said in a May research report that “Energy storage has the potential to serve as an additional growth driver” for SolarEdge. “We are already starting to see this segment bear fruit, not yet on the top line but with increased visibility from Tesla Energy’s recent battery announcement.”

U.S. Global Investors’ Matousek notes that many solar energy stocks sank along with oil prices in 2014. Given that solar energy is an alternative to expensive fossil fuels, he says, it made sense for investors to anticipate that solar demand would slow as prices at the pump dropped and reduced near-term incentives to shop for lower energy alternatives.

But, he adds, oil prices will inevitably rebound. Already, he says, with the modest recovery this year in crude prices, investor attention has turned back to the solar realm, benefiting the likes of SolarEdge’s stock.



Thank you for your excellent write up about SEDG. You helped all of us to take good notice of this opportunity that Mr market offers, and only savvy investors like you and others in this board can recognise.

Yesterday I started a tiny position to keep an eye on it for further analysis, just because of you.

If it meets your criteria it’s good for me too to try.

Thanks again!



Gross margin of 27.6%

This gives me pause. That’s a low number. If there is competition and they are forced to lower prices then the company could swing into the red. Alternatively, if their volume sales are not sufficiently high then their gross margin may not be able to cover growing OpEx. Questions that I would have include…

  1. are there components that could be redesigned so that they can lower their COGS?

  2. having Tesla and SolarCity will help keep sales costs down because it requires a lower effort distribution channel. On the other hand, it leaves them open to customer concentration risk and purchasing power risk.



Gross margin of 27.6%. This gives me pause. That’s a low number.

Hi Chris, Companies with huge orders that they have to scramble to keep up with by increasing production and shipping by air, often have this problem. They seem to be resolving it as their manufacturing grows and they benefit from economies of scale. That 27.6 is up from 21.6 the quarter before. They had to do less air shipments, and probably pay less overtime and double shifts, but still were doing some air shipments that quarter.


1 Like

I think they projected 26-28% for next quarter.

This is not without risk. The danger is that they will be become a commodity product as there is always a better technology over the horizon, but for right now, they are growing like mad.

Allow me to stick a contrarian nose in here for a moment.

I think they’re already a commodity product. Power inverters are all around us. Those ubiquitous wall-warts that plug into the wall are power inverters. Your computer has a power inverter inside it. Almost every electrical appliance you have has a power inverter. Even your gasoline powered car has a power inverter (or two or three).

Power inverters convert electricity between AC and DC. Electric grids around the world run on AC, as that form of electricity is much better for transmitting over long distances. But DC is generally more useful for electronic gadgets of all types.

Photovoltaic (PV) solar power - the typical solar panels - product DC power. That gets converted to AC to be compatible with our home’s wiring and our power grid. Then it often gets converted back to DC. Each conversion causes some loss of power - mainly through heating.

But there’s another issue that is specific to PV. If one panel produces less power than others on the same inverter, it will drag down the production of all of the panels. That can happen from dirt on the panels or shadows or a failing panel. So the efficiency of the PV system depends, to some extent, on the least efficient panel. You can overcome this somewhat by connecting fewer panels to an inverter. But that means using more inverters. There’s a cost/benefit tradeoff between the use of inverters and the efficiency of the system. Using more inverters increases efficiency, but the increase needs to be worth the cost of the additional inverters.

It looks to me like this company’s product is simply multiple small inverters packaged into a single box, with a bit of monitoring added to keep track of efficiency. That doesn’t strike me as groundbreaking, nor does it strike me as something subject to significant patent protection.

The problem I see with this stock is that none of this stuff is groundbreaking. What my gut is telling me is that this is a sales enterprise. They’ve got good sales people selling a decent, but not irreplaceable, product. Of course they’ve got good top line sales growth. That’s what start up sales companies look like. And the margins are, well, marginal - likely due to price cutting to get the sales. As soon as they try to increase prices to improve margins, the sales growth will crash.

Touting the sales to Elon Musk’s companies is just marketing blather. I suppose it at least validates their product is OK at the current selling price, otherwise Tesla and Solar City wouldn’t have bought at all. But even there, it looks like the main reason Solar City is buying from SolarEdge instead of Enphase is simply cost. SolarEdge’s inverters are cheaper. That’s pretty much the definition of a commodity.

So I think Saul has hit the nail, but didn’t realize it. The biggest risk to SolarEdge is that they will become a commodity product. But they are already a commodity product. Therefore, that risk has come to pass and the company is getting by for the time being by undercutting their significant competition. In the short term, that’s bad for Enphase. But in the longer term - which might not take all that long - it’s a problem for SolarEdge. Someone else can come along and take sales from them by accepting an even lower margin.

I’m going to take a pass on this one. It might be OK for another month or year or two. But when the time comes to hit the exits, there are going to be a lot of shareholders trying to squeeze through a few small doors. I don’t want to be around for that.



Great post, Peter. The commoditisation explains the low gross margins.


U.S. Global Investors’ Matousek notes that many solar energy stocks sank along with oil prices in 2014. Given that solar energy is an alternative to expensive fossil fuels, he says, it made sense for investors to anticipate that solar demand would slow as prices at the pump dropped and reduced near-term incentives to shop for lower energy alternatives.

When I see observations of this nature it makes me pause and marvel at how incredibly uninformed (or ill informed) the investor community truly is.

As oil prices plunge to something in the vicinity of $60/bbl solar stocks sympathetically sank on the logic that conventional fuel has become cheaper, thereby reducing the competitive pricing position of solar.

Of course, the flaw in this logic is the fact that the price of oil has no relationship to the cost of electricity. Virtually 0% of electrical capacity is generated from liquid fuels (discounting emergency backup generators which are typically fueled by diesel or gas). The predominant fuel employed by electrical utilities world wide is coal. But, apparently, in the minds of the majority of investors all fossil fuels are interchangeable, so if oil prices sink, somehow, magically so too must coal thereby reducing the primary input cost of generating electricity which in turn puts more price pressure on the solar industry.

Except for the little wrinkle that price of oil is unrelated to the cost of making electricity . . . but, oh well . . .


Power inverters are all around us. Those ubiquitous wall-warts that plug into the wall are power inverters. Your computer has a power inverter inside it. Almost every electrical appliance you have has a power inverter. Even your gasoline powered car has a power inverter (or two or three).


Not to disagree, or agree, with your conclusion because I don’t have any research to support or dispute it but I view your basic statement that you derive your argument from as being false, or at least inaccurate. Those wall warts and other devices you mention are NOT power inverters. Power “inverter” is a device that specifically converts DC (direct current) to AC (alternating current). The devices you mention convert AC to DC, which is simpler. A solar unit creates DC power that must be converted to AC to power a house so that then much of it can be converted back to DC by those wall warts or internal converters for many of the modern devices we use. :wink: All pretty crazy, huh? As far as I know gasoline powered cars do not have any inverters, although you can buy inverters that plug into the DC outlets. So, they aren’t quite the commodity devices you might think although I’m sure there are a number of manufacturers of inverters. I believe the race in inverters for solar power systems is maximum efficiency since every watt lost is precious. I know nothing about this company and whether or not they have some edge.



There is some remote future correlation between oil and electricity prices.

Assume that oil goes to $10/bbl and stays there. There would be massive conversions of NG and coal plants to oil. And lower electric rates (but not much lower if your utility is anything like mine)

Of course in the real world the conversion wouldn’t be cheap and in fact nobody knows what oil prices will be next week much less over the next 20 years. Today’s oil prices have nothing to do with electricity prices.Except for special situations like Hawaii and some places in the Middle East.

I do think oil use has peaked in the developed world, and shale oil gives a huge underlying supply possibility. Probably there is shale oil elsewhere than in the US, it just hasn’t been tapped because of national politics or local incompetence. With their high overhead it is hard for Big Oil companies to exploit these but there are plenty of smaller companies that can. All of this suggests it will be a long time before we see over $100/bbl oil prices.


Those wall warts and other devices you mention are NOT power inverters. Power “inverter” is a device that specifically converts DC (direct current) to AC (alternating current). The devices you mention convert AC to DC, which is simpler.

Excellent point. I was speaking a bit too loosely there.

Power inverters take the straight line DC power and “invert” part of it to get wiggly AC output.

Rectifiers take that wiggly AC power and make it a [mostly] straight line DC current.

Rectifiers are all around us (there’s probably more than one around you right now), but inverters are less common.

However, the science of the electronics are well-known and have been for years. (Perhaps back to the debates between Edison and Tesla over whether AC or DC was better. Strangely, although many electric utilities bear his name today, Edison was on the DC side of the argument.)

But I think my error on this definition of inverters is not really relevant to my main argument. You can by utility grade inverters from at least the two companies mentioned in this thread. And there may be one or two others as well. From what I can determine, the main difference between SolarEdge and Enphase at the moment is that SolarEdge is cheaper. SolarEdge has had some big growth recently, but that is likely due to undercutting it’s competition on price. That is the first step toward commoditization of a product.



Just for drill the assertion that Electric grids around the world run on AC, as that form of electricity is much better for transmitting over long distances is not true. It was a bit of marketing BS which George Westinghouse exploited in order to convince a bunch of capitalists that his system was superior to Thomas Edison’s.

In fact, Edison’s DC system is superior technology. There are numerous high voltage direct current (HVDC) transmission systems in place around the world. They have lower loss over long distances and do not suffer from phase relationship problems when combining power supplied to substations from different origins.

But, because George was successful in perpetrating this myth, we’re pretty much stuck with AC at the local level which creates the requirement for those ubiquitous wall-warts which you correctly observed are power inverters.

That’s a bit beside the point. It seems that the point is that the SolarEdge technology is not so simple as it may at first appear. If it were truly no more sophisticated than a package of smallish inverters I don’t think there would be winning market share. I don’t know how Mr. Rive makes decisions about what technology to employ. Maybe he defers all these questions to chairman and cousin Musk, who is an extremely well qualified engineer. Their revenue and earnings are both growing so they apparently have some pricing power.

Your probably right about the probability of crowded exits, but I think they’ve got a few years of growth before any alarms go off. I’m willing to take up a small position to see where it goes.


My understanding of the AC is much better for transmitting over long distances all related to the ability to change voltage of AC using transformers. Was there a suitable technology back then that allowed changing high voltage DC from a transmission line to a voltage more reasonable for household use? Or for that matter, a way to boost the voltage part way along a transmission line to compensate for the drop over the distance already spanned?

I feel like the crux of the issue is what competitive advantage, if any, SEDG has (and, if they have one currently, the chances of them holding onto it). I think that’s where a lot more research is needed.

This is a short article I found interesting pitching the idea that SolarCity should buy SolarEdge. The pitch aside, it provides a high-level summary of the players, their competitive positioning, and the specific synergies between SolarEdge and SolarCity. It also contains links to various industry research reports (by the same group), which could be interesting – I haven’t looked at those, and don’t even know if they’re available to the public.


I’m interested in this company, but only if they have a competitive advantage of some kind. I need to understand their product and their market position better.



DC voltage drop may depend a lot on volts. While I know nothing about AC I did a lot of wiring on a 12 volt DC boat system and voltage drop even with good sized wires and short distances was pretty significant. Of course that was before the internet when it was hard to find appropriate wiring sizing and voltage drop information.

In any case it doesn’t matter what is best, the grid and homes are stuck with what they have.

For motors AC must have been a lot better for Musk and crew to put up with the loses converting from a DC battery to an AC motor.

Here’s a suggestion: Before anyone hits the “Buy” button to acquire SEDG shares, it would be good to consider the question: Why is SEDG valued 3x more than ENPH (Enphase)?

Whaaaat? Hey, I’m not looking to be obtuse. If you would care to read the entire post, you’ll understand the question.

Disclosure: ENPH shares now comprise 12% of my portfolio. If you read the entire post, you’ll understand why.

But first, let’s take a stroll down memory lane. From the dawn of the solar energy age, it was a pressing requirement to devise ways to convert the DC power generated by solar panels into usable AC current. String inverters were developed. They cabled all the panels together and fed the bundled line into an inverter module. String inverters dominated the industry. They weren’t problem free. If the inverter failed, the whole system failed. Furthermore, there was no way to know when/if a specific panel failed. Everyone wanted a better mousetrap. Then, less than a decade ago, folks devised better systems; namely microinverters.

Microinverters are modules installed on every panel to monitor performance AND invert the current to AC. The cabling ended as a single line feed with no intervening gizmos. Enphase (ENPH) became a leading pioneer. It clawed its way into the marketplace, displacing string inverters. It was a tough slog, but ENPH kept improving its systems until it had captured roughly 40% of the market (estimates vary).

SolarEdge (SEDG) had been doing business as a string inverter provider for a number of years (as a private company) prior to going public via an IPO this spring. SEDG entered the fray by offering a hybrid product: “DC-optimizers”. DC-optimizers function much the same as microinverters; that is, they allow individual panel monitoring just as microinverters do. They don’t invert the current, though (I suspect patent/IP restrictions are in play). Ergo, DC-optimizer systems still require bundling the cables for input into a separate DC inverter module. SEDG addressed a distinct competitive disadvantage, but still clung the inverter module which still constitutes a single point of failure.

Anyone wishing to get their geek on can visit both SEDG and ENPH websites. Both companies proclaim their products are the bestest. One can also find numerous articles comparing microinverters to SEDG’s DC-optimizers. My takeaway from such articles is that there’s no clear winner. Having said that, I’ll also say that ENPH has been going gangbusters globally, entering into all manner of agreements with suppliers, contractors and governments. ENPH went global years ago. SEDG has barely begun.

But let’s get back to the original question: Why is SEDG valued 3x more than ENPH? My answer? Either SEDG is wildly over-priced or ENPH is wildly under-priced.

Lets look at a few numbers: (note, I’ll offer numbers in pairs - the first number is from SEDG financials/the second from ENPH).

Market cap: 1.52 Billion/391 Million.
Total Revenue: 271M/373M
P/S (lower is better): 3.81/1.03
5-year Revenue Growth: 11%/41%
EBITDA: (-17M)/2.84M
Cash Flow: negative/positive

Actually, one has to work quite a bit to get a glimpse of SEDG’s financials. The company went public last quarter, hence, there’s not a whole lotta information regarding past history. I will note this: SEDG financials from its one public reporting period reflects a good bit of financial engineering. In the months leading up to its IPO, SEDG floated a large bond offering and then reaped millions from the IPO. As a consequence, SEDG reported 411% cash growth…but it didn’t come from sales. In fact, SEDG is cash flow negative and used cash flow from financing activities to offset losses from operations.

In contrast, ENPH exhibits Y-O-Y sales revenue growth of 50% Its 5-year growth average is 76.3% ENPH has no debt and positive free cash flow.

As matters stand, both companies enjoy consensus “Buy” ratings. ENPH sells today ~$9. Analyst 12-month estimates vary from $16 to $24. Even if ENPH were only to reach $16, that would be coming close to a doubling. Analyst 12-month estimates for SEDG are actually a bit lower than its current price. Upside potential? Dunno.

Here are summaries of current analyst estimates:

SEDG - http://tinyurl.com/nc3tutw
ENPH - http://tinyurl.com/q959373

Folks, I merely scratched the surface (yeah, I’m lazy that way). I suggest folks do detailed head-to-head comparisons of the two companies’ financials. By almost every significant metric, ENPH is outperforming SEDG.

It’ll take a few more quarterly reports before investors can have a solid understanding of SEDG’s performance. ENPH went public in 2009. Lots of data are available.

I remain quite bullish regarding the solar sector and ENPH in particular. Others may find SEDG more appealing. So be it. That’s what makes a market.


ENPH shares now comprise 12% of my portfolio.

putnid, SEDG aside, what is it that you like so much about ENPH to give it such a large allocation? It’s hard to imagine it grew to that organically, given the current share price.

Also, why doesn’t SolarCity like their stuff? That’s an honest question – I don’t know much about the industry.



what is it that you like so much about ENPH to give it such a large allocation? It’s hard to imagine it grew to that organically, given the current share price. - Neil

I’ve been investing in ENPH (as a swing trader) for over a year. ENPH has been very, very good to me. Without resorting to maths, I estimate I’ve enjoyed returns greater than 300%. I’ve posted about this several times before. In short, ENPH has traded within a range from ~$10 to ~$15. These 50% swings proved lucrative for me. The point to remember is that ENPH struggled to make a profit over the course of five years. If one studies the finanacial statements, one can see a steady progression towards profitability. ENPH is now on the cusp of significant profitability.

I hadn’t planned to allocate as much as I have to ENPH shares. But I’m the sort who tries to conceptualize a fair market price before I buy. Once I buy, should the share price continue to fall…I buy more. Frankly, I’m amazed the share price fell as fast and deep as it has. The Market has miscalculated ENPH’s value while gushing over “Musk Majik”. In the final analysis, the financials will win out.

As for SolarCity’s relationship with SEDG? I’ve no idea what went on between the three enterprises (Tesla, SolarCity and SEDG). Several analysts have opined that SEDG cut its price (SEDG’s profit margins are lower than ENPH’s). I really don’t know.

Frankly, I don’t consider SolarCity’s influence to be decisive (although the Market continues to revere all things Musk). SolarCity claims a 30-35% share of the US market. There are other players (e.g., Vivint) but, altogether, the US market for distributed solar is served by a whole slew of privately held enterprises. ENPH seems to be quite popular with a myriad of contractors. More important, ENPH has deep relationships with contractors in Europe, Australia and China. Should the estimates of global solar energy growth come anywhere close to expectations, ENPH can easily achieve a double-digit CAGR over the course of the next few years.

Hope that helped.


Great summary of ENPH, Putnid!

I’m an investor in them and also have 24 of their microinverters on my roof solar PV system.

I’ve had the system installed for almost 4 years now and loved the product and the many advantages it had over the old string inverters that were available when I was designing my system.

I don’t believe SolarEdge had their DC-optimizer product at the time I had my system installed.

One advantage I really liked about Enphase’s microinverters is they have a 25 year warranty (same as my panels) vs the 10-12 year warranty on string and DC-optimizer inverters.

Here is a link to my system stats online:


I have a much more robust view of my system’s operation and reports I can run on my private access site, but Enphase lets you tag your site as public where it will show this minimal view to anyone that cares to look.



This is a short article I found interesting pitching the idea that SolarCity should buy SolarEdge. The pitch aside, it provides a high-level summary of the players, their competitive positioning, and the specific synergies between SolarEdge and SolarCity. It also contains links to various industry research reports (by the same group), which could be interesting – I haven’t looked at those, and don’t even know if they’re available to the public.

Hi Neil, I thought this was a very interesting article, for a number of reasons:

First, because of the date it was published. It was last October, when SolarEdge was a private company, before the IPO, before the big blowout December and March quarters, and before the deal with Tesla.

Second, because it was written by the solar analyst for GreenTech Media: MJ Shiao is the Director of Solar Research at GTM Research. When not occupied by the visions of PV balance-of-systems innovations dancing in his head, he leads GTM Research’s solar market analyst team and its coverage of the global solar PV value chain.

Third, because, as this was way before the IPO and it wasn’t yet a publicly traded company, he couldn’t have been touting SolarEdge because he had a long position in it. He must have seen a real advantage for SCTY in acquiring SolarEdge.

Thanks for posting it.