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Why SolarEdge Stock Melted Down Today

By Rich Smith – Updated Dec 20, 2021 at 4:21PM

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Build Back Better is likely dead. So ... RIP SolarEdge?

What happened

SolarEdge (SEDG -2.36%) stock, the maker of power inverters for converting direct current solar energy into the alternating current that powers your lights and computer and charges your iPhone, is in a funk Monday -- down 9% as of 3:20 p.m. ET.

There's no news on the feeds from SolarEdge per se, but even so, it's no great mystery why the stock cratered today. Build Back Better just died in Congress.

Red down arrow on a black backdrop of tickertape prices.

Image source: Getty Images.

So what

Or at least it looks that way. A lot of newspapers and news magazine have published a lot of takes on this story today, but The New Yorker perhaps offers the simplest summary, arguing that West Virginian Senator Joe Manchin "kill[ed] the Build Back Better bill."

Yesterday, Senator Manchin announced that after trying "everything humanly possible" to come to a compromise, he still found himself unable to vote in favor of Build Back Better and its $1.75 trillion price tag for social spending and green energy subsidization. In declining to vote for the bill, Manchin ensured that the most the bill might garner in the Senate is 49 votes -- too few to pass it even under a budgetary reconciliation procedure.

Now what

What does that mean for SolarEdge? Basically, it means that investors in this solar stock cannot count on an explosion in federal spending on solar projects. When Build Back Better dies, it will take a staggering $555 billion in proposed federal clean energy subsidies with it.

Granted, Build Back Better's death won't kill SolarEdge outright. With sales growth of 55% and profits growth of 20% last quarter, this company's solar business was strong before the bill was proposed, and it will remain strong without Build Back Better.

That being said, a lot of the growth that SolarEdge investors were counting on to support the stock's 117-times-earnings valuation will probably die out, and in the absence of that growth, the stock's premium valuation is likely to decline going forward.

Rich Smith 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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