The renewable energy sector has shown a lot of promise in recent years but has yet to reach its full potential. However, with more people interested in environmental conservation efforts than ever before and cutting-edge new technology coming to light, alternative energy has the potential to explode in the coming years. Solar prices are becoming more affordable and there’s also the chance that if Joe Biden wins the presidential race, he will be spending trillions on clean energy initiatives. All of this adds up to a strong bullish case for renewable energy stocks.
SolarEdge Technologies (NASDAQ:SEDG) has been one of the best performing solar technology stocks in the market this year. The stock is hitting new 52-week highs on a strong Q2 earnings report and might provide investors with some bright days ahead. Let’s dive into SolarEdge’s business below and determine whether or not it’s worth a look for your portfolio at this time.
Harnessing the Power of the Sun
SolarEdge Technologies is a global leading PV inverter manufacturer and creates technology that changes the way that solar power is harvested. PV systems, or photovoltaic systems, are power systems that are designed to convert sunlight directly into electricity. Without getting too deep into the tech behind SolarEdge’s products, its PV systems can maximize the amount of solar power generated while lowering the cost of the energy that is produced. Its solution consists of a direct current (DC) power optimizer, an inverter, and a cloud-based monitoring platform that all operates in one coherent system.
As you can imagine, there are plenty of applications for SolarEdge’s technology including residential, commercial, and large scale PV systems. SolarEdge also creates tech related to energy storage, backup power, grid services, batteries, and home energy management. Although solar installations took a hit during the first half of the year, it’s encouraging to see SolarEdge’s sales rebounding and that it is penetrating international markets which account for roughly 40% of solar revenue. The bottom line is that this technology has a ton of potential as people continue opening up to the idea of using the sun to power their daily lives.
Q2 Earnings Beat
SolarEdge shares have risen over 25% since August 4th after a Q2 earnings beat, but it’s important to remember that analyst expectations were quite low for the company due to challenges related to the COVID-19 pandemic. With that said, there were definitely some positive takeaways for investors. SolarEdge saw Q2 revenues of $331.9 million which was a year-over-year increase of 2% and Gross Margin of 31%. Net Income was also up 11% to $36.7 million, which is impressive during an undeniably challenging quarter for the company.
SolarEdge was also able to provide guidance for Q3 with revenues between $325 million and $350 million. This is great news for investors since the majority of businesses seem unable to provide guidance at this time due to so much uncertainty related to the pandemic. Perhaps the most positive thing about this report was the rebound in Sales and Installations for Europe, which even exceeded pre-COVID-19 levels in some countries for the company. Although U.S. sales have not fully recovered, should they rebound sharply in Q3 the company could continue its streak of beating analyst’s earnings expectations. Regardless of what happens for the rest of 2020, a massive improvement in sales in 2021 and beyond is absolutely on the cards for SolarEdge.
Is SolarEdge Flying Too Close to the Sun?
It’s interesting to think about the future of solar energy and how the industry is holding up even with dramatically low oil prices. Normally, when oil prices take a hit, solar stocks are negatively impacted since the perceived demand for alternative energy diminishes. This year, solar stocks are showing serious strength regardless of oil prices and are benefitting from low interest rates that allow consumers to invest in solar technology without racking up tons of debt to cover the costs.
SolarEdge Technologies looks like one of the best companies to own in the growing solar energy industry. It’s expansion into new countries, strong cash flow generation, and decent earnings during the pandemic have led investors to pile into the stock and drive it to all-time highs. However, understand that this stock is up over 200% since hitting March lows and could burn investors that are chasing it at these levels. It’s probably best to wait for a significant pullback before adding shares of this alternative energy company with a bright future.