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Why Shares of SolarEdge Plunged 34% in March

By Scott Levine – Apr 7, 2020 at 4:10PM

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Less present in January and February, the bears made their presence known last month.

What happened

One of the best-performing renewable energy companies of 2019, SolarEdge Technologies (SEDG -1.74%) continued to burn brightly in 2020, rising 31% through the first two months of the new year. The stock's climb, however, came to an end in March, when shares tumbled 34%, according to data from S&P Global Market Intelligence.

SolarEdge didn't report any specific news that motivated investors to sell; however, the general concerns regarding the COVID-19 outbreak which led to the S&P 500 plunging 12.5%, the spread of the pandemic in Italy, an analyst's reference to the stock, and concerns regarding the COVID-19 stimulus package all contributed to the stock's decline.

A scared investor recoils under a down-trending red arrow.

Image source: Getty Images.

So what

The devastation wrought by COVID-19 in Italy was surely upsetting to millions of people around the world. But for SolarEdge's investors, the spread of the disease in Italy had specific relevance since the company's January 2019 acquisition of a 57% stake in S.M.R.E. Spa, which is headquartered in Italy, for $73 million. In the press release related to the acquisition, SolarEdge touted the acquisition of S.M.R.E., a developer of powertrain solutions for electric vehicles, stating that the deal will "empower SolarEdge's growing business group at a time when the world is undergoing a clean energy transformation and e-mobility revolution." SolarEdge provided no updates to the S.M.R.E. situation last month, leaving investors unclear about how the subsidiary was faring.

Later in March, investors found an analyst's critical commentary about the stock to be another source of concern. Moses Sutton, an analyst with Barclays, initiated coverage on the stock and assigned a $99 price target, according to -- notably lower than those of Oppenheimer and JMP Securities, which had assigned price targets of $151 and $157, respectively, in late February.

Lastly, investors worried that the stimulus package would fail to provide relief to the solar industry in the form of a renewal of the investment tax credit, raising concerns that the solar industry may not grow as significantly in 2020 as it did in 2019. Incidentally, their fears were confirmed; the $2.2. trillion legislation didn't provide the sought-after relief.

Now what

Despite the stock's sell-off last month, SolarEdge remains a compelling opportunity for renewable energy-focused investors who have a long-term investing horizon. The long-term trend in the United States supports the belief that the solar industry will transcend the current headwinds and continue to grow, benefiting SolarEdge. And although the company faces challenges now in Italy, in time, S.M.R.E. will likely provide SolarEdge with strategic value in the electric-vehicle market.

The clouds already seem to be clearing, for shares have already begun to fight their way back, climbing nearly 8% so far in April.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends SolarEdge Technologies. The Motley Fool has a disclosure policy.

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