Can There Be More Upside for SolarEdge Technologies (SEDG) if It Is Overvalued?

SolarEdge Technologies may be overvalued with poor growth indicators, but the 27 analysts following the company give it an average rating of buy. The analysts have set target prices ranging from $305.0 to $452.0 per share, for an average of $366.5. At today's price of $290.71, SolarEdge Technologies is trading -20.68% away from its average target price, suggesting there is an analyst consensus of strong upside potential.

SolarEdge Technologies, Inc. designs, develops and sells optimized direct current (DC) inverter systems for solar photovoltaic (PV) installations worldwide.

SolarEdge Technologies has a trailing twelve month P/E ratio of 181.69, compared to an average of 27.16 for the Technology sector. Based on its EPS guidance of 11.61, the company has a forward P/E ratio of 25.04. Based on the average annual growth rate of SolarEdge Technologies's historical and projected earnings per share, which is 114.2%, the company's PEG ratio is 1.59. This suggests that these shares are overvalued.

Furthermore, SolarEdge Technologies is likely overvalued compared to its book value, since its P/B ratio of 9.14 is higher than the sector average of 6.23.

Why would analysts be giving such an overvalued stock a good rating? It's possible that analysts are looking beyond common valuation metrics and taking into account the company's responsible use of debt to operate its business. They likely put significant weight behind SolarEdge Technologies's growth potential, as signaled by its 29.49% rate of revenue growth and capital expenditures that are growing at 38.77%.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $1,426 $1,459 $1,964 $3,110
Revenue Growth n/a 2.36% 34.58% 58.38%
Gross Margins 33.62% 31.62% 32.04% 27.16%
Gross Margins Growth n/a -5.95% 1.33% -15.23%
Operating Margins 13.32% 9.77% 10.55% 5.34%
Operating Margins Growth n/a -26.65% 7.98% -49.38%
Earnings Per Share $2.8 $2.66 $3.04 $1.67
EPS Growth n/a -5.0% 14.29% -45.07%
Diluted Shares (MM) 52 53 56 56
Free Cash Flow (MM) $186 $96 $65 -$138
FCF Growth n/a -48.58% -32.32% -312.79%
Capital Expenditures (MM) $73 $127 $149 $169
LT Debt to Equity 0.53 1.43 0.31 0.58
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.