SolarEdge (SEDG) mid-quarter review

SolarEdge (SEDG) mid-quarter review

Let me preface by emphasizing that I am not a techie, and therefore what I am giving on my own inexact impressions, which may definitely include misunderstandings. I know nothing about solar technology. Nothing! Okay,

Who is SolarEdge?
This company was founded in 2006 and is headquartered in Israel, which already adds a certain political and war risk (although the way things are going the war risk seems to be spreading around the world). The company designs and manufactures direct current (DC) optimized inverter systems for solar photovoltaic installations in Israel, Europe, the United States, and internationally. Its DC optimized inverter systems include power optimizers, inverters, and cloud-based monitoring software. Basically, as I understand it, they sell something essential for installing solar panels. And they sell the best of the product that they are selling.

Isn’t solar a risky field to be in?
Heck, Yes! Government subsidies are supposed to expire at the end of 2016. Plus, the falling price of oil has not only killed the oil companies; any company related to solar has been killed too.

What is your history with them?
I’ve been a stockholder for roughly 5 months now. They are just below the middle of my pack, the eighth of fourteen positions.

Don’t technology manufacturers have constant pressure to cut prices?
Yes, the average selling price of their inverters constantly falls but they are confident they can continue to reduce the cost of manufacture faster. They are coming out with new products in the fourth quarter, they also have built a factory in Mexico and are about to start using it, and are installing a fully automated assembly line in their plant in Hungary and have ordered two more automated lines. Each will cut cost 10% and increase quality of the product. They expect to be in EVERY major solar company in the US. The ones they aren’t yet in are testing their products already.

Well, how are their gross margin percents doing? Are they being squeezed?
Last six quarters:
19.6
21.0
21.6
27.6
28.9
29.5
That means their last quarter was 29.5%, up from 21.0% the year before. They clearly aren’t being too price-pressured.

Why is their product best for their customers?
I don’t really have the slightest idea, to tell you the truth, but it obviously is! They just recently appeared on the scene, and for their last quarter their revenue grew over 70%. That’s revenue! And that was a slowdown! The quarter before, off a smaller base their revenue was up over 100%. And they’ve formed alliances with SCTY and TSLA (to supply products for Tesla’s Powerwall), and I respect Musk’s judgment. And they have begun to wholly or partly displace competitors from every major solar company.

Can’t they just be designed out of the next model if someone else comes along with a better solution?
I would think so. But so far there doesn’t seem to be any threat on the horizon. They seem to be pushing their biggest competitor (who was the legacy king of the mountain before SolarEdge came along), out of the business.

How has SEDG stock been doing?
The high was $42.20. I initially bought 5 months ago at $39.50. Since then they’ve fallen as low as $15.50 (!) and they are now at $18.27 with a PE of 19.0 (adjusted). I added on the way down.

Wow, That’s terrible! They are more than 50% off the high! What happened? What did they do wrong?
Well, let’s see! Last quarter revenue was up just 72% year over year, and up 17% sequentially. And adjusted net income was up 482% from $2.8 million to $16.3 million, and adjusted earnings per share were up 500% from 6 cents to 36 cents, and as I mentioned above, adjusted gross margins were 29.3%, up from 21.0%. Earnings the last five quarters as I calculate them (it’s a little difficult as they recently IPO’ed), were 6, 9, 20, 31, 36 cents. (Before that they had losses). When the December earnings are announced their PE will be about 14.5 at the current stock price. Revenue per quarter in millions of dollars has been (rounded off) 31, 45, 67, 73, 86, 98, and 115 last quarter. They obviously aren’t doing anything wrong. It’s the whole uncertainty about the price of oil and the solar industry that’s been killing their stock price.

To summarize
This is a lot more of a risky company than SWKS. It’s younger, it’s much smaller, it’s headquartered in a dangerous place (although it’s scattering its factories around the globe), and it’s in an industry (solar), which will probably grow enormously in future years, but which right now is facing some big worries and headwinds. On the other hand, it has a product that everyone in the industry seems to want and need, and that it keeps improving and coming out with new models of, so that it’s growing incredibly fast.

I hope you found this one interesting, entertaining and useful too.

Saul

For Knowledgebase for this board
please go to Post #9939.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board

74 Likes

Thanks Saul,

Because of your suggestion, I am now a SolarEdge shareholder.

Interestingly, I just received a quote for a property in South Africa Solar solution and the top Solar Company sent this:

Yingli Panels, SolarEdge Inverter and Tesla Powerwall. The marketing blurb for SEDG is:

"SolarEdge offers a cost-effective module-level optimisation solution for commercial systems that allows you to harvest more power from your PV system, for faster return on investment (ROI) and reduced costs.

The solution’s faster and more efficient design provides you with an increased energy yield, up to 50% reduction in electrical BoS components (wires, conduits, fuses, etc.), as well as a 25-year warranty on optimisers and inverter"

So, SEDG it seems is gaining traction across the globe, which leaves me feeling less worried about the impact of the end 2016 rebate. Hearing Hillary Clinton and Obama talking about Solar, I see them pushing very hard for the tax rebate to be extended further. (Just an opinion)

So Saul, keep doing these summaries please, they are EXTREMELY helpful.

Regards
Justin

4 Likes

Concentrations of Major Customers
Our trade accounts receivables potentially expose us to a concentration of credit risk with our major customers. As of September 30, 2015, three major customers accounted for approximately 49.5% of our consolidated trade receivables balance. We currently do not foresee a credit risk associated with these receivables.

Small company but that is living dangerously.

SolarEge sells its products to big installer companies such as SolarCity (backed by Tesla), Vivint Solar VSLR 1.18% and SolarRun. SolarCity SCTY 1.18% makes up 19 percent of SolarEdge’s revenue and recently went public December 2012 at $8 a share and currently trades above $49
http://www.benzinga.com/news/15/03/5349928/ipo-outlook-more-…

I’m probably biased because I’ve made quite a bit of money shorting SolarCity as a candidate for going to zero. If you don’t see a credit risk with SolarCity I don’t think you are looking hard enough. Will see.

SolarCity (SCTY) Stock Soars on $100 Million Silver Lake Kraftwerk Investment
We rate SOLARCITY CORP (SCTY) a SELL.
http://www.thestreet.com/story/13370695/1/solarcity-scty-sto…

Soared by 2.51%. Some of the problems listed there, biggest problem is that SCTY is not competitive with the incumbents even with the ITC in place and some of the current PUC arrangements. I’m in Arizona and even there cost per kwh isn’t competitive at all. Minor details like that.

SEDG is interesting but I think there is additional risk associated with that concentration in revenue from a few customers but I am biased.

6 Likes

The company designs and manufactures direct current (DC) optimized inverter systems for solar photovoltaic installations in Israel, Europe, the United States, and internationally.
…
Government subsidies are supposed to expire at the end of 2016.

Very small point, but specifying explicitly which government would make sense after pointing out their international nature. (Yes, I know it is the USA in this case, but some may not.)

1 Like

Why is their product best for their customers?
Short answer, same as other winning technology: better (more efficient), cheaper, smaller.

This is a very good article on SEDG vs ENPH and what their technology does…
http://www.bloomberg.com/news/articles/2015-11-03/contest-to…

“The weakest link in a solar system is the inverter, and it’s a big part of the cost,” said Jigar Shah, a clean-energy investor and consultant. “Anyone who can offer a smart panel at a lower price is going to win market share.”…The company to watch is SolarEdge, which is expected to become the top inverter supplier for U.S. rooftops this year, surpassing incumbent Enphase, according to GTM…
SolarEdge introduced a new inverter…reduces weight and uses digital processing to improve performance.
“This is revolutionary,” SEDG said. Those changes translate to more power produced on more rooftops at a lower cost than competing products. “It puts us on a much better improvement curve.”…

Historically, solar installers would connect a single inverter, about the size of a laser printer, to a bank of about a dozen or so panels. Smaller rooftop systems typically used a single inverter to control all the panels. A key problem with this design is that if one panel fails, they’re all wired together and they all go down.

Enphase addressed this by introducing in 2008 micro-inverters, smartphone-sized units that attach to the bottom of every panel and handle the electricity from only that one. That can make installation easier, and cheaper, and also help meet tightening fire-safety regulations that require ways to shut off rooftop power systems within 10 feet of the panels. That helped make Enphase the top inverter supplier for the U.S. rooftop market.

SolarEdge entered the U.S. rooftop market in 2012 using a different design: a single centralized inverter to control the system, plus another device called an optimizer, small units that attach to each panel. The setup means individual panels can be monitored and controlled, and the whole thing won’t go down if a single panel has problems.

Here is why they are crushing ENPH…
In the quarter that ended in June, Enphase sold inverters for an average of about 52 cents a watt, compared to SolarEdge’s average price of about 35 cents a watt Their additional plants are driving down the costs another 10 cents, Enphase seems doomed, which will lead to more market share and maybe a slightly higher margin down the road.

This article talks about Enphase’s issues…
http://www.bloomberg.com/news/articles/2015-11-04/enphase-pl…

It’s expected to lose its spot as the top supplier for the U.S. rooftop market this year to rival SolarEdge Technologies Inc., which offers a different type of inverter at lower prices.

4 Likes

SolarEdge article by Bloomberg addressing Solarcity relationship and diversifying past the US.

http://finance.yahoo.com/news/elon-musks-connection-solaredg…

What SolarEdge investors want to see is the company diversify its customer base away from the U.S. and SolarCity. By focusing on Europe and Japan, the company is doing just that, Chief Executive Officer Guy Sella said in a conference call this month.

Other considerations: Cheap coal and gas prices indirectly hurt demand for solar energy and SolarEdge is also locked in a “price war” with Californian competitor Enphase Energy Inc., said Jeff Osborne, an analyst at Cowen & Co. in New York.

“It’s difficult to make an earnings model if you don’t know what prices will be,” he said.

Pete,

what would the buy signal look like on the chart. I see the double bottom
you mentioned. But anything more? Breaking the downtrend line, breaking the 200 or 50 day, rising above most recent high just above 22? Volume?

I am trying to learn not to catch falling knives by peeking at these things, and enjoy your posts.

Thanks

Gator

I am trying to learn not to catch falling knives by peeking at these things, and enjoy your posts

First, for every point you give me, give Saul 10 and weight your decisions that way.

If I have to parrot what TA people would say, I would say this…
IBD/CANSLIM would say that this correction from $45 to $15 has done way too much damage and you should not buy for a long time. That being until it approaches old highs after constructing a good base. They would argue that corrections this deep have a lower frequency of recovery so go hunting elsewhere. If the base was “good” an IBD double bottom likes to go just below the previous low and then the buy point is the peak of the W. There is not a clear peak of the “W”, though you might think $29.26 would suffice. For and IBD buy you also want strong volume as it passes a buy point (pivot point). Again, this chart would not buy that criteria.

A chartist might say buy when the double bottom is tested successfully. This happened at $15.02. If you buy with that thesis, then you also want to sell if the stock falls below the double bottom. Otherwise buying on a chart thesis is pointless.

Personally, if I did buy at that level, I would have saved some money for add ons. I would then add if it retakes the 200dma and holds it for 2-3 days.

A very short term trader buys the double bottom and then sees what happens a the 200 dma, if it can’t break thru and starts to fall again, you believe that the previous inability to retake the trendline is the truth and you sell before you lose your gains.

David Gardner and Saul don’t care, they are looking for longer term gains based on fundamentals. Saul’s thesis is that 1YPEG is the thesis and once it gets around 1.0, he will sell. If the growth trends and fundamentals change significantly his thesis broken and he sells. DavidG’s thesis is that it can take 5-10 years for the company to show its dominance or show its “multiple possible futures”. He rarely sells because his big winners allow the laggards to have time to prove themselves.

So what would you do? If you bought on the double bottom bounce or today and it could not retake the 200, what would you do? Are you buying because Saul thinks it has long term potential, or for a short term trade. Many people will trade the chart around a core holding they are holding for long term. If you are committed, then the double bottom was a place to add, as is above the 200. So I am conservative adding to stocks, especially on a chart with this much damage.

As the Talking Heads said “You’re talkin’ a lot, but you’re not sayin’ anything…fa fa fa fa fa fa fa fa fa far”

http://stockcharts.com/freecharts/gallery.html?sedg

4 Likes

Gator, if you want to look at a nice chart, check out INFN.

http://finviz.com/quote.ashx?t=INFN

First it had a very strong breakout in Oct 2014 on very strong volume for the week. They buy point was 11.94 (IBD says don’t buy more than 5% above the buy point if you trade by their rules).

(See middle chart here)…
http://stockcharts.com/freecharts/gallery.html?infn

It then rose virtually unabated to $25. Trees don’t grow to the sky, people want to take profits. Here we see a reasonable profit taking: some higher volume at first, but nothing dramatic or damaging. There was the Aug 24 flash crash, but it bounced back nicely but later fell below that level. Unlike SEDG, it did not take long to retake its 50dma and 200dma lines (and it did it on great volume showing the big boys were still backing the stock. This could be a place to “cheat” and add if not following strict IBD rules). I would not have considered this a good double bottom because the second bottom was too far below the first. It was not just a “shakeout”. We have now been above the trend lines for several weeks, a good sign.

We are still building the right side of the base and want to see nice up volume days that cause up volume on the right to exceed the red down volume on the left. Then we want it to approach highs and slow down and better add a handle to the cup pattern that is building. then some catalyst causes a breakout to new highs on volume - that is when the IBD buyer jumps in (again within 5% of the buy point to keep risk lower).

If you are using the charts to give you confidence when to add to 1YPEG, then I could see adding on that volume move above the 200 (too late now). you could also slowly nibble now that it is showing strength. If it starts falling, wait until you see if it can test the 200 and bounce or does not even fall that far.

Again, I do lots of nibbling and let the charts convince me to nibble more. I am starting to talk myself into another nibble :wink: I could not fault you from adding to INFN, but I could find more chart reasons not to add to SEDG.

Remember this:

  • If you are going to have a 10 year horizon like the G-bros say, then charts are super useless. look at any 10 year chart and you can’t see what the heck was going on.
    -Draw enough lines and some will appear to be true
  • even a fortune cookie is right every now and then…

Fortune cookie story (from Planet Money podcast). In a winning lottery, there are usually a couple second place winners that make $100K. In one lottery there were about 100. Lottery officials immediately thought there was fraud. The system was rigged or something. They interviewed every second place winner. Turns out they ALL got their numbers from a fortune cookie! There are only a couple places that make the cookies and they repeat the fortunes many times over. In this case they had a random winner.

So that is what my advice is worth.

3 Likes

Gator check this article then check the charts,.

http://news.investors.com/investing-stock-market-today/11231…

http://news.investors.com/investing-stock-market-today/11231…

HAWK has recently been explored on this board.

re SEDG I said Personally, if I did buy at that level, I would have saved some money for add ons. I would then add if it retakes the 200dma and holds it for 2-3 days.

I went back and looked at my scorecard and I bought my first stake at 16.12 on 11/7/15. So taking my own advice I guess I will watch for the 200 dma resistance :wink:

i still have worries about Solar and it could see lots of vol before we get rid of all the subsidies and let things grow naturally. So I won’t grow my position too big until then…probably.

Time to zzzzz.

David Gardner and Saul don’t care, they are looking for longer term gains based on fundamentals. Saul’s thesis is that 1YPEG is the thesis and once it gets around 1.0, he will sell. If the growth trends and fundamentals change significantly his thesis broken and he sells.

Hi Puddinhead,

David Gardner and Saul don’t care, they are looking for longer term gains based on fundamentals.
I’d say true on this.

Saul’s thesis is that 1YPEG is the thesis
Not true. It’s just one factor in a stock. Look on the Knowledgebase where I put down all the things I look for in a stock.

once it gets around 1.0, he will sell.
Only sometimes. It’s just one factor. I held WAB for a long time with a iYPEG over 1.00 for instance.

If the growth trends and fundamentals change significantly his thesis is broken, he sells.
True

Saul

7 Likes

thanks Pete!

I learn from these, no reason not to marry the two, I am not an idealist.

Very helpful if nothing other than thinking about it

Gator