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  • Writer's pictureOwen

2020 Will Still Be A Growth Year For SolarEdge

Updated: Jan 23

Summary

  • Q1 earnings for SolarEdge Technologies with 59% yoy growth in an increasingly difficult economy shows the business strength.

  • The stock price is off highs on modest Q2 revenue guidance of $305-335 million on COVID-19 concerns; that's below Q1 2020 but still around Q2 2019 levels.

  • Long term, SolarEdge is benefitting from leadership of PV inverter with panel optimizers that offer optimal rates of performance and lower costs.

  • A forward P/E of 33 compared to earnings growth of 30-50% p.a. following COVID-19 means SolarEdge remains a long-term hold.


Introduction


SolarEdge Technologies (NASDAQ:SEDG) has just reported Q1 earnings and again reported record results, but provided modest guidance for Q2. We bought SEDG for our global growth stars strategy for the growth and market position. But post earnings is always a good time to review holdings and rebalance.


Before we get into our standard report, let's have a look at Q1 earnings.


Q1 - Record results but modest Q2 guidance.

  • Record revenues of $431.2 million up 59% yoy.

  • GAAP net income was $42.2 million up 122% yoy.

  • GAAP EPS was $0.81 per share up from $0.39 yoy.

  • Q2 Revenue guidance was $305-335 million, which is similar (or weaker) compared to Q2 2019, which was $320 million.

  • Q2 Gross Margin of 30-32% compared to 32.5%.


Quick comments:

  • Q1 exceeded the 50% year-on-year revenue growth level again.

  • Actually reporting guidance is a good sign! Most companies have withdrawn guidance in Q1 earnings this year. This reminds me of the expression "if you don't have anything good to say, don't say anything at all." SolarEdge providing decent guidance almost half-way through Q2 is, in comparison to other companies, a good sign.

  • Gross margins guidance is barely changed despite the significant disruption that could easily increase air freight and transport costs.

  • There is a strong likelihood of continued strong net income and cash flow.


The guidance indicates that COVID-19's impact on SolarEdge's business is real, but at worst it might be a quarter of no growth.


Now, back to our normal report structure.


What does SolarEdge do?


SEDG is a leader in PV inverters, although it offers a "full stack" solution for solar systems. Besides inverters, that full stack includes battery systems, UPS (uninterruptible power supply) solar panels, panel optimizers as well as power management systems.

SolarEdge's solution, which combines DC optimizers for each panel with other innovations, has quickly risen from a 5% US market share in 2013 to 60.5% of the US residential solar inverter market. We will delve deeper into the "why did this happen" question later in the competitive advantage section.


Test 1: Strong Revenue Growth


SolarEdge has grown its revenue very strongly for many years, with revenue rising almost every quarter, with only a small dip in Q4 and Q1 2017.


Source: CGP Asset Management from SolarEdge Data.


In fact, in many years, the growth of revenue over the same quarter the previous year has exceeded 50%. This is exceptional growth for most companies but is truly extraordinary for a hardware company.


Read the rest of this report here on Seeking Alpha.

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