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Why SolarEdge Stock Popped 12% This Morning

By Rich Smith - Dec 11, 2020 at 12:24PM

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Wall Street lines up in support of solar power stocks.

What happened

SolarEdge Technologies ( SEDG -3.62% ) stock gained nearly 12% in early morning trading Friday before the maker of power inverters for solar panels retreated closer to noon. As of 11:45 a.m. EST, shares are still hanging onto about a 7% gain.

You can probably thank the friendly analysts at investment bank Piper Sandler for that.

Glowing green arrow climbs on a stock screen

Image source: Getty Images.

So what

This morning, Piper Sandler initiated coverage of SolarEdge with an overweight rating and a $325 price target that implies a further 11% upside from the stock's current price. The upgrade follows a raised price target from investment bank J.P. Morgan, which on Wednesday hiked its valuation of the stock to $315.

In Wednesday's note, J.P. Morgan argued that although solar stocks such as SolarEdge trade for "elevated" valuations, these valuations are justified because the U.S. government is preparing to provide "aggressive" support to the renewable energy industry in 2021. Piper Sandler agrees with this take, by the way, and adds that SolarEdge holds the leading position in solar inverters and power optimizers, which would make it a logical beneficiary of any coming government largesse.

Result: Piper sees SolarEdge stock offering "robust potential" to investors, and believes the company could grow sales 15% to 25% annually going forward.

Now what

Believe it or not, that's actually the conservative view on Wall Street, where the consensus of analysts polled by S&P Global Market Intelligence is that SolarEdge will grow its earnings at a steep 30% clip over the next five years.

Even assuming these analysts are right, however, the real question is whether 15%, 25%, or 30% growth is fast enough to justify the stock's valuation. At $15 billion in market capitalization, SolarEdge shares currently cost nearly 86 times trailing earnings, and close to 97 times trailing free cash flow.

Personally, that's too rich for my blood -- no matter how good the analysts say this company is.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
$307.00 (-3.62%) $-11.54

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