What happened
Shares of SolarEdge Technologies (SEDG +1.72%) gained 46% in the first six months of the year, according to data provided by S&P Global Market Intelligence. That easily topped the 4% decline of the S&P 500 in that span, although shares have risen even higher in July. The stock is now trading hands at all-time highs.
There hasn't been much company-specific news supporting the year-to-date surge. Rather, the world's insatiable demand for small-scale solar installations continues to power the business. If SolarEdge Technologies can successfully leverage the solar industry's growth to diversify operations, then the growth stock could retain its blue chip reputation for the foreseeable future.
Image source: Getty Images.
So what
SolarEdge Technologies generates most of its revenue from the sale of microinverters, which are required to operate solar energy systems. In the first quarter of 2020, the business reported a record $431 million in revenue, representing year-over-year growth of 59%, at an operating margin of 16.7%. Profitable growth of that magnitude is very rare, which explains why shares have climbed to all-time highs this summer.
The first-quarter revenue total includes over $407 million from solar products. While SolarEdge Technologies is slowly diversifying into new areas, such as lithium-ion batteries and at-home charging technologies for electric vehicles (EVs), there's plenty of growth remaining in the solar industry.
For example, the business recently launched its Energy Hub Inverter product. The system combines the latest software and energy-storage hardware, integrates seamlessly with the company's Smart EV Charger, and is designed to work with the company's development-stage products (it's "future proof"). If the efficiency, price, and convenience of the product catch on in a highly fragmented solar hardware space, then it could keep growth humming along.
Now what
SolarEdge Technologies trades at a hefty premium and an all-time high, but investors can't find many other profitable, high-growth businesses. Margins could erode as competition increases and the market expands, but the business is well-positioned to benefit from the massive growth of small-scale solar installations and its own diversification efforts. Investors with a long-term mindset might not see too many reasons for concern, although breaking up purchases when building a position would be prudent given the stock's valuation.
