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Why Shares of SolarEdge Technologies Plummeted 14% in December

By Scott Levine – Jan 9, 2022 at 8:15PM

Key Points

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Clouds hung heavy on investors' minds last month thanks to unfavorable news out of Washington.

What happened

Failing to recover from its 7.6% decline in November, shares of SolarEdge Technologies (SEDG -2.41%) plunged 14.4% in the last month of 2021, according to data from S&P Global Market Intelligence.

With the crumbling confidence that the Build Back Better plan would come to fruition, questions about solar incentives in California, and an analyst's negative opinion about the shares, investors didn't feel like warming up to the solar stock in December.

A woman rubs her temples while looking at a laptop.

Image source: Getty Images.

So what

Renewable energy investors had been paying close attention to the progress of the Build Back Better plan through Congress. Addressing a variety of areas, the legislation would've been a powerful catalyst for the growth of the solar industry in particular, according to analysts. The Solar Energy Industry Association and Wood Mackenzie -- a consultancy that specializes in renewables, among other areas -- estimated that the Build Back Better plan had the potential to increase solar deployment projections by 31% over the next five years. Political headwinds, however, were too formidable for President Joe Biden, and confidence that the bill would make it to his desk eroded through December.

On Wall Street, one analyst turned bearish on the stock as momentum for the Build Back Better plan's passage ebbed. J.B. Lowe, an analyst at Citigroup, cut the price target on SolarEdge's stock to $385 from $435, though he maintained a buy rating. Lowe's reduction of the price target is a stark turnaround from November, when he raised his price target to $435 from $360.

And he was far from the only one optimistic about the stock's prospects at that time. Other analysts also hiked their price targets in response to the company's third-quarter 2021 earnings report. Susquehanna analyst Biju Perincheril raised the firm's price target to $400 from $350, while Philip Shen at Roth Capital raised his price target to $395 from $310, for example, With analysts' so bullish on SolarEdge in November, it's likely that Lowe's price cut in December was seen as a harbinger of more analysts turning pessimistic.

Now what

Undoubtedly, the seeming demise of the Build Back Better plan is disappointing for SolarEdge investors, but it's far from catastrophic. The company maintains a strong position in the solar industry, and investors can expect it to achieve continued growth as it develops its energy storage offerings.

For investors looking to buy and hold for the long term, the stock's recent pullback represents a chance to pick up shares at a much more lower valuation. Nonetheless, the stock remains pricey, trading at 91 times operating cash flow, so budget-conscious investors may want to wait for the stock to tumble a little further before clicking the buy button.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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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