SolarEdge Shock: Unveiling the Surprising Turnaround, #SEDG Stock Rises Against All Odds!

SolarEdge : My Erroneous Assumption and the Excessive Fallout

• summary
• -SolarEdge has encountered a substantial downturn attributed to a reevaluation of its worth and the collapse in consumer demand triggered by escalated interest rates.
• -The enhancement of the payback period for solar installations hinges on the gradual escalation of utility costs.
• -SolarEdge confronts this challenging phase armed with a net cash balance sheet.
• -I reassert my resolute recommendation to buy, emphasizing the compelling valuation.
• -Seeking a collection of ideas akin to this? Exclusive access to subscriber-only portfolios is granted to Best Of Breed Growth Stocks members.

Is there a growth stock more battered than SolarEdge (SEDG)? In 2023, technology stocks, on the whole, recuperated a significant portion of their 2022 losses. However, SEDG seems to be undergoing a belated response, with its shares undergoing a valuation reset akin to the tech stock crash. The prevailing circumstances bear striking resemblances, with the primary culprit being the surge in interest rates leading to a collapse in consumer demand. With its growth narrative visibly fractured in the short term, SEDG serves as a poignant reminder that under the favorable veil of a zero-interest rate policy, cyclical stocks may not appear as cyclical. Despite the apparent overreaction, long-term investors should scout for opportunities amidst the downturn. I endorse SEDG as a robust buy, anticipating a vibrant recovery, though exercising patience is imperative.

SEDG Stock Price

SEDG witnessed a series of crashes, one after another. Those acquainted with the movements in stock prices in 2022 might draw parallels when it took multiple quarters for investors to comprehend fully the impact of heightened interest rates on underlying growth rates. SEDG managed to elude the slowdown for a considerable part of 2022, but destiny is inescapable. In my last analysis of SEDG in August, I assigned a strong buy rating based on valuation. Regrettably, I miscalculated the depth of the cyclical downturn and, more significantly, underestimated the cyclicality inherent in the business. Despite resources available to weather the storm, the sun will eventually illuminate this solar champion once again.

SEDG Stock Key Metrics

In its most recent quarter, SEDG witnessed an abrupt contraction in end-market demand. Sequentially, the units shipped declined as customers opted to revoke orders.

As revealed in their preliminary report, SEDG reported revenue significantly below guidance, witnessing a 13.3% YoY decline to $725.1 million.
SEDG also experienced a deterioration in gross margin during the quarter, plummeting over 1,200 basis points sequentially. On the conference call, the management explicated that the cost of goods sold encompasses expenses not synchronized with shipping volume, including warranty costs, contract manufacturer claims, and others. It is in these challenging periods that investors are prompted to acknowledge the underappreciated exceptional prowess of counterparts like Enphase (ENPH), capable of commanding – and sustaining – elevated unit-level margins even during distressing times.

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