Shares of SolarEdge, one of the biggest names in the solar-power inverter market, were down 3.9% through 10:55 a.m. Eastern Standard Time on Tuesday, as the stock markets reopened after the Christmas holidays.
A high probability exists that Daiwa Securities may be responsible for the fact that that has happened.
Charging Up
As of Friday, SunTrust Bank has initiated coverage of SolarEdge stock with a neutral rating and has initiated coverage of the company monthly.
It also initiated coverage of Enphase Energy, SolarEdge’s main rival, which was rated outperform by StreetInsider.com, which reports that the company also initiated coverage of SolarEdge.
In general, Daiwa says the economy is “dour,” but signs of a turning corner in the solar industry remain positive, despite the economic downturn.
As a result, Daiwa is seeking new ways in which it can invest and grow its business in the solar industry. As part of this category, we include companies with the potential to increase their market share and gross profit margins.
There is a current gap between Enphase and SolarEdge in terms of earnings. In light of this, it would seem that SolarEdge would have more room for growth than its closest competitors.
Daiwa, however, has reported that SolarEdge’s market share in the U.S. has been declining due to Enphase’s growth. TheFly.com also reported that SolarEdge is experiencing negative profit margins due to its current business practices.
Anything Else?
The last point, however, doesn’t seem to jibe with the reality of the situation.
Even though SolarEdge’s profit margins are inferior to those of Enphase (7.7% operating margins versus 17.6% operating margins), and they are falling (SolarEdge’s margins were consistently twice as high as they currently are in the years leading up to the pandemic), these margins are at least positive based on data from S&P Global Market Intelligence.
For those interested in SolarEdge, Enphase and others, it is pertinent to keep in mind that both companies’ valuations are extremely high. Stocks like SolarEdge, which trades for roughly 152 times trailing earnings, and Enphase, which trades for about 135 times earnings, don’t appear cheap either.
I find that even though Daiwa is correct about the companies’ growth prospects, and most analysts agree that these prospects are very bright, with the company SolarEdge expected to grow by 35% over the next five years, while Enbridge is expected to grow by 54% over the next five years, it’s still very difficult to justify the stock prices of these two companies.
It could be that Daiwa thinks Enphase is a buy, while SolarEdge is only rated as a hold by the company.