Dear Followers&Copiers, In this post I run a fundamental update for $SEDG, which “together with its subsidiaries, designs, develops, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. It offers inverters, power optimizers, communication devices, and smart energy management solutions used in residential, commercial, and small utility-scale solar installations; and a cloud-based monitoring platform that collects and processes information from the power optimizers and inverters, as well as monitors and manages the solar PV system. The company also provides residential, commercial, and large scale photovoltaics, energy storage and backup, electric vehicle charging, and home energy management solutions, as well as grid services; and e-Mobility, automation machines, lithium-ion cells and battery packs, and uninterrupted power supply solutions, as well as virtual power plants, which helps to manage the load on the grid and grid stability. In addition, it offers pre-sales support, ongoing trainings, and technical support and after installation services. The company sells its products to the providers of solar PV systems; and solar installers and distributors, electrical equipment wholesalers, and PV module manufacturers, as well as engineering, procurement, and construction firms. SolarEdge Technologies, Inc. was founded in 2006 and is headquartered in Herzliya, Israel.” (Yahoo! Finance).
Another Financial Year (FY) has passed and it’s time to update the equity portfolio of the Global Leaders Portfolio (GLP) in terms of the SIAScore we use. $SEDG is one of our portfolio names. Let’s quickly remind what SIAScore is and how the process :
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
Let’s analyse each step now…
S1: 1 point
$SEDG operates in a growing sector with brigth future ahead – clean energy. Moreover, the current democratic swing in US (and possibly other countries to follow suit) post the election of Joe Biden for US president, additinally supports the clean energy growht story.
S2: 1 points
The company is among the leaders in its sector and pretty impressive business growth stats over the recent years.
S3: 0 points
2018——2019——-2020——-AVG——-last yr AVG
34,1%….. 33,6%…….31,6%…….33,1%…….34,37%
Gross Profit Margin (GPM) is below our minimum 40% treshold. Moreover the avg GPM deteriorates, which indicates growing competition int he sector and growing problems of keeping assumed margin on $SEDG‘s products. This trend is most possibly going to continue, unless they come up with some brand new technology or improvement that could add additional margin to their mix. This point is definitely to be watched closely.
S4: 2 points
2018——2019——-2020——-AVG——-last yr AVG
-2,4……….-1,9……….-2,72…….-2,34……….-2,6
$SEDG‘s net cash position is very safe, but the 3yr avg deteriorated somewhat form last year. Not a sign for worries, given the company’s liquidity levels.
S5: 2 points
2018——2019——-2020——-AVG——-last yr AVG
9,3%…….4,0%……….0,6%……….4,63%……….6,77%
The avg 3yr FCF yield is way above the minimum treshold level, which is currently at higher of the two: the $SPX500 dividend yield (1,53%) and the 10Y treasury note yield (1,65%). Hence the stock is a good alternative to other stocks, as well as to the risk-free assets, even after such a big move higher in the yields lately.
Aggregate score for $SEDG: 7 points (down 1 pt YoY).
Conclusion: Fundamentals of $SEDG are sound. GPM must be watched. Valuation-wise it trades at an extremely lofty 96x TTM PE, with the avg for the $SPX500 Shiller CAPE at similar level of 36,6x. Additionally its 1yr forward PE stands at 41x, which is also challenging. Current valuation is in my view the biggest risk in the mid-term, in the long term the stock’s investment story will depend on the growth rate. Technically the stock is appx 32% off its ATH around USD380 and it keep correcting it’s 2020 massive rally – I think it’s healthy. Avg analyst’s 12-month target price for the stock is USD328, so with an upside form here. I keep $SEDG in my portfolio as long-term holding, but momentarily with an uunderweight vs. other stocks.
Best regards, GlobalAlphaS
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