Why SolarEdge Stock Popped Ahead of Earnings

This post was originally published on this site

What happened

Shares of solar power inverter maker SolarEdge Technologies (NASDAQ:SEDG) raced ahead nearly 10% in afternoon trading on the Nasdaq Stock Market Thursday before retreating to a still respectable 7.2% gain as of 2 p.m. EDT.

You can thank the friendly bankers at Barclays Capital for that.

Image source: Getty Images.

So what

SolarEdge is scheduled to report its first-quarter 2021 financial results after close of trading on May 3. Unwilling to wait that long for good news, however, this morning, Barclays upped its rating on SolarEdge stock from equal weight to overweight (i.e., buy), and assigned the stock a $365 price target that implies 43% upside, according to TheFly.com.  

In fact, Barclays went so far as to call SolarEdge its top pick in the solar industry this year, arguing that analysts are shooting too low on their Q1 earnings estimates, given the potential for the company’s Kokam lithium battery subsidiary to add extra profit to the company’s Energy Hub inverter business.

Now what

Is Barclays right about SolarEdge? The company’s growth rate has been truly fantastic so far, with sales more than doubling over the last three years, according to S&P Global Market Intelligence data, and analysts forecasting continued 25% annualized earnings growth over the next five years.

Still, SolarEdge’s current valuation of 100 times earnings makes it look extremely pricy even taking that growth as a given, and the stock gets even more expensive if you value it on free cash flow — about 147 times FCF. Long story short, even if Barclays is right about SolarEdge beating earnings next month, the stock’s expensive valuation makes it a hard one to buy.

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.