Shares of solar energy leader SolarEdge Technologies (SEDG 2.81%) had an absolutely brutal morning on Friday, crashing by as much as 36.5% in early trading. Shares were still down by 29.8% at 11:59 a.m. ET, and showed no signs of making a significant recovery.
A disappointing guidance update
The main driver of that downward movement was the company's release of preliminary third-quarter results on Thursday evening. Management said it now expects to report revenue of $720 million to $730 million for the period, well below its previous guidance range of $880 million to $920 million. Non-GAAP gross margin is also expected to be 20.1% to 21.2%, well off the 28% to 31% guidance range. It even expects a GAAP operating loss of $9 million to $28 million.
The company blamed those poor results on cancellations and pushouts of orders from customers in Europe, but what we're ultimately seeing is that demand for rooftop solar systems weakened as interest rates rose, and as consumers around the world now have less available money to spend on large home upgrades.
From bad to worse at SolarEdge
There's no way around it: Those preliminary results were bad, and much worse than the market was expecting. What's not at all clear is when SolarEdge's operations will turn around.
Installers are feeling pressure from higher interest rates, so they will need to either raise prices or reduce costs to keep their businesses viable. Prices may go up slightly, but I see pressure being put on companies like SolarEdge that operate in the high-margin segment of the value chain.
These macro pressures from higher interest rates and slower installations aren't going to ease anytime soon, so until we learn more about the state of the residential solar industry, this is a stock I would stay away from.
