Solaredge: Bright Light in Solar
05/29/2017 2:56 am EST
Timing is everything in investing. Invest in a great company just before a correction, and you could be licking losses for years. But I also believe that strong fundamentals will eventually win the day, asserts Robert Rapier, editor of Investing Daily's The Energy Strategist.
That has been the case with SolarEdge Technologies (SEDG). SolarEdge is a supplier of solar inverters, a high-tech component that turns collected solar energy into a usable electric current and is a key determinant of a system’s efficiency. Importantly, this is a higher margin business with fewer competitors than that of photovoltaic panels.
Since going public in 2015, SolarEdge’s results have repeatedly beat expectations. The company has consistently and impressively grown revenues, profitability and cash flow generation year after year. But it did so during a solar slump that persisted throughout 2015 and 2016.
Shares in the company declined along with the rest of the solar sector. Following a more than 50% decline from its peak price in 2015, we added SolarEdge to the Growth Portfolio a year ago.
The company continued to report good results, but the share price continued to decline. I bought shares for my portfolio in June 2016, but they fell through the end of the year. At year-end, I had sustained a loss of 35%.
But I am a firm believer in the future of solar power. I believe that growth in the sector will continue to be exponential for many years to come. I think quality companies in the sector will outperform the market in time, but short-term fluctuations can be sharp.
I refused to sell, and I refused to remove the company from the portfolio. The fundamentals continued to impress, and the outlook was good. I sell companies when the outlook changes, or when I believe the share price is fully valued — not just because the share price declines.
Patience has paid off lately. The share price has been rising since January, capped off by a 12% jump last week when the company once again released strong earnings despite a challenging environment.
Year-to-date, shares are now up by 48%, which makes SolarEdge the top-performing company in the portfolio this year. SolarEdge has had a good run this year, but I still think it’s undervalued. SolarEdge remains a Buy up to $25.