SolarEdge Technologies (SEDG 3.37%) stock fell nearly 16% after it reported its first-quarter results. The stock is nearly 40% off its high this year. Renewable energy stocks, including solar, are witnessing significant declines this year. Let's see if SolarEdge stock's steep fall presents a buying opportunity or not.

Earnings in line with guidance

SolarEdge Technologies reported first-quarter revenue of $405.5 million, down 6% from the year-ago quarter. That was better than an 8% year-over-year fall that it had guided.

Solar panels on a bright sunny day.

Image source: Getty Images.

Similarly, its non-GAAP gross margin for the quarter of 36.5% was marginally higher than its guided range of 34% to 36%. The company's revenue got hit in the second quarter last year due to COVID-19. Though its sales have been recovering sequentially, it was still a bit lower in the latest quarter compared to the year-ago pre-pandemic quarter.

While the effect looks reasonable, it is the growth of its competitor that's the real concern for SolarEdge investors.

Stiff competition

In addition to valuation concerns, one of the key reasons behind the steep fall in SolarEdge stock is the stiff competition it faces. In the latest quarter, while SolarEdge's revenue fell 6%, rival Enphase Energy (ENPH 1.06%) reported a 47% growth in its revenue. What's more, Enphase Energy's U.S. revenue in Q1 grew 38% year over year. In comparison, SolarEdge reported a 38% year-over-year drop in its North America megawatts shipped. 

SEDG Revenue (Quarterly) Chart

SEDG Revenue (Quarterly) data by YCharts

Enphase Energy derives 82% of its revenue from the U.S. In comparison, North America accounted for roughly one-third of SolarEdge's megawatts shipped in Q1 2021. SolarEdge seems to be falling behind in this key geography.

As the above graph shows, Enphase Energy's stronger gross margins in recent quarters add to investors' concerns about SolarEdge.

SolarEdge has a lead in international markets

Despite setbacks in the North American market, SolarEdge grew its international volumes in Q1. Two-thirds of SolarEdge's shipments are to international markets, mainly Europe. The company has a strong presence in several key European markets, where Enphase Energy is far behind.

SolarEdge expects revenues in the range of $445 million to $465 million in Q2. That represents a healthy growth sequentially, as well as year over year. It expects non-GAAP gross margin in the range of 32% to 34%.

Differentiated offerings in a growing market

Though both SolarEdge and Enphase Energy's products enhance output from solar panels, their offerings differ technically. While Enphase Energy offers microinverters that can be attached to each panel, SolarEdge offers optimizers that can get attached to string inverters. Depending on customers' preference, each product has its own market. Of course, the two can overlap, and customers may prefer one over the other.

SolarEdge is on track to launch its residential battery this quarter. In addition to residential solar, SolarEdge is also expanding its offerings in the commercial and utility segments to fuel growth. 

The two companies enjoy a growing addressable market. With differentiated offerings and a growing market, one company's gain doesn't necessarily have to come from the other's loss.

SolarEdge's valuation looks more attractive

Enphase Energy's stock is currently trading at a premium valuation compared to SolarEdge, reflecting the former's higher growth.

SEDG PE Ratio Chart

SEDG PE Ratio data by YCharts

SolarEdge's price-to-earnings (P/E) ratio has improved to 90 from 137 in January, while its forward P/E ratio has fallen to around 45 from 75 in January. Furthermore, the stock's forward price-to-earnings-growth ratio, or PEG ratio, is well below one. A lower PEG ratio is better, while a ratio above one suggests overvaluation.

SolarEdge stock could see further correction -- its P/E ratio is way higher than its historical average levels. However, based on its expected earnings growth, the valuation seems reasonable. For long-term investors, the current dip presents an opportunity to build a position in SolarEdge stock.