SolarEdge Technologies (SEDG): Insider Selling, Rival Actions Cool Off This Stock

by Sonya Colberg, Senior Editor - 6/23/2016 11:48:38 AM

Just beneath investors' radar, SolarEdge Technologies (SEDG) is fighting a feud worthy of the Hatfields and McCoys. There will be no "hog trial" this time around but today's revenge-fueled struggle would make those rival clans proud.

(Clan leaders William "Devil Anse" Hatfield, Randolph "Rand'l" McCoy. Source: tourpikecounty)

Indeed, chief rival Enphase Energy is fueling the feud with the launch of a new battery backup system for homes that ultimately may significantly pressure SolarEdge's market share.

And risks just keep piling up against this solar optimizer and power systems inverter company. (Inverters change solar panels' DC electricity into AC or alternative current for use by in-home appliances and community electricity grids).

When the smoke clears this time, a most unfortunate loser will stumble out ... current SolarEdge stockholders.

Investors may find other viewpoints on Israel-based SolarEdge here. Meanwhile, TheStreetSweeper presents the top reasons we dislike this stock.

*1. Smart Insiders: Bid SolarEdge Stock Goodbye

Insiders have been unloading their company stock. Year-to-date, insiders have sold well over $25 million worth of stock - an action that could be a sell signal for other investors, too.

(Source: Bloomberg)

Indeed, insider buying is virtually nonexistent compared with insider selling:

(Source: Nasdaq)

Maybe insiders know something the market has missed ... something like the following huge risks....

*2. Grudge Match: Old Nemesis Plots Revenge - Aggressive Price Cuts, New Tech

Not long ago, Enphase Energy (ENPH) was a big ol' boy in the business.

The maker of solar microinverters claimed bragging rights until SolarEdge came along with a cheaper alternative and stole away market share.

A grudge match ensued. Now Enphase is determined to shove SolarEdge aside by introducing new technology and aggressive price cuts.

*3. Kicker: "Rolls Royce" Enphase Ups The Game

"Enphase ... is the Rolls Royce of all inverters in the industry," according to a solar contractor who spoke with TheStreetSweeper.

He said Enphase has introduced a battery backup for homes that is incompatible with SolarEdge.

The SolarEdge technology involves DC current that must be converted to usable energy before it can charge a battery. Enphase's microinverter, however, has already converted DC to usable AC energy that charges the battery. 

(Source: Enphase)

The new AC battery is part of the Enphase system, including microinverter, networking hub and an energy tracking system that lets homes and businesses monitor how much solar energy they are generating and using. Then the system determines whether the solar energy should be stored or used.

(Source: Enphase energy storage system)

Enphase launched the AC battery last month in Australia and New Zealand as part of its international expansion. The United States launch is planned later this year.

"We expect the initial demand to be driven by installers looking to retrofit existing residential solar PV systems," Enphase executive Nathan Dun told PV Magazine. "Emphase expects the next wave of demand to be driven by new solar PV system owners enticed by the elegance and simplicity of our solution"

If people like the new Enphase system well enough, SolarEdge could lose serious market share...

*4. Aggressive: Enphase Slashes Prices

Enphase also hopes its severe price cut strategy will cut SolarEdge out of the picture.

During the recent earnings call, a Roth analyst asked Enphase leaders how competitors were reacting to its slashed prices.

"So we are again very encouraged by the success of the pricing action," said Enphase CEO Paul Nahi.

He said the result "provides the confidence for us to be able to continue to be aggressive on pricing throughout the end of the year."

Mr. Nahi added that the strategy is increasing market share:

"But for us with the success that we’re having on the cost production and the success we’re seeing in gaining market share as a result of more aggressive pricing, we’re confident that we’re going to be able to continue to gain share, while we over time increase gross margin."

*5. Under Siege: Commercial Segment

At the same time, SolarEdge's commercial segment is also under siege. A third of its sales are in commercial installation. But Chinese vendors are jumping into the commercial biz with both feet ... offering cheaper inverters.

Huawei previously used aggressive pricing to crash into the global telecommunications equipment business. Now its gone after the solar inverter business with the vigor of an MWac karate expert ... actually shipping more inverters last year than anyone else.

(Source: GTM Research's Global PV Inverter and MLPE Landscape)

Ol' Huawei offers some nice stuff, including some specially designed for the American market.

Just as interesting ... well, actually unfortunate for SolarEdge ... Huawei's 2015 total revenue hit $60 billion.

Huawei isn't the only Chinese company getting into solar ...

*6. Crowding In: Chinese Vendors

Chinese companies have been selling string inverters at cheap prices ... just about 8 cents per watt.

But SolarEdge's DC optimizer cost comes out at around 30 cents.

More and more low-cost Chinese vendors have crowded into this competitive business.

(Source: EnergySage)

Americans could be warming up to cheaper Chinese inverters, too. In fact, a California solar loan firm has added Ginlong Solis to its approved vendor list.

*7. Cheap Deals: More Ahead

The Hatfields and McCoys may have taken some cheap shots in the day of the clan feuds. Likewise, cheap clearly hasn't lost its popularity in the day of solar inverters.

Chinese firms aren't backing away from cheap prices and neither will Enphase. The snapshot emphasizes the SolarEdge rival's resolve to continue lowering prices.

(Source: Enphase)

So more bargain basement pricing could well translate to additional price deterioration for SolarEdge.

*8. Execution: Delayed

It's never good to have to delay rollout of a product. But considering the mounting pressures, the timing is especially bad for SolarEdge's residential inverter.

During the May earnings call, analysts needled company leaders a bit over the anticipated third quarter rollout being delayed two quarters ... as much as six months.

Asked for an explanation, CEO Guy Sella mentioned production lines. He also mentioned cutting prices:

"So, we're rolling it out slower than expected, mainly because of the fact that we need to adapt the production lines to it. And due to the high demand, it take us longer than expected. I think that in Q3 calendar, the majority will still be the current [venues] we are selling, which is a very attractive, great inverter, and we keep reducing its price, and we'll get to the majority probably a couple quarters later."

The stock collapsed from around $23 to ~$17 per share, in the wake of the $0.51 earnings (a $0.10 beat) and soft guidance announced after the market closed May 9.

(Source: Yahoo Finance)

Hmmm. It seems people are beginning to sweat the SolarEdge risks.

*Conclusion

The Hatfields and McCoys fought and sued and cussed their generation's clans nearly to smithereens. It's not all sunshine and rainbows for SolarEdge either.

Considering the risks - massive insider selling, feuding industry, more declining prices, rival's new differentiated product, market share pressures, the rollout delay, and irrationally frothy share prices - the stock should fall off the cliff.

We expect an initial drop of about 30%, followed by a reality-kissed fall for the solar sector of another 20% or so.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in SEDG and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

Share





For Previous Stories Click Here!


| More