Is SolarEdge a Value Investment in Clean Energy?
SolarEdge Technologies Inc. (NASDAQ: SEDG) is a rare potential value investment in clean energy.
SolarEdge is potentially a value investment because it makes money and markets products critical for the commercialization of solar electricity and electric vehicles. For example, SolarEdge makes optimizers which solar cells need to operate.
To demonstrate, SolarEdge and Panasonic Eco Solutions are marketing the HIT S Series Module. The module is designed to generate power under any condition, a SolarEdge press release claims.
To clarify, the module will work in high temperatures. Importantly, the HIT S Module will not work without a SolarEdge optimizer.
SolarEdge Inverters are critical to Solar Electric
SolarEdge’s inverter technology could be even more valuable than modules. Without inverters, the electricity produced by solar panels is useless.
Therefore, every solar electric system will need an inverter. SolarEdge has developed inverters that could convert up to 100-kilowatt hours of electricity. Critically, SolarEdge’s phase three inverters are small, easy, to carry, and easy to install.
SolarEdge has developed large capacity inverters for use at solar power plants. Moreover, SolarEdge has smaller inverters for homes and businesses.
Uniquely, SolarEdge is a leader in the solar inverter business. The Israeli company claims to have manufactured enough inverters to convert 7.5 gigawatts (7.5 billion watts) of electricity from DC to AC since 2006. Additionally, SolarEdge markets its products in 125 countries.
How Solar Edge could Cash in on Electric Vehicles
A charging inverter for electric vehicles is potentially Solar Edge’s most profitable product.
The inverter will allow you to charge an electric vehicle (EV) from either grid or solar electricity. For example, you could charge your Tesla X Series from a solar electric system or from the grid.
Notably, the EV inverters installations require no additional wiring, conduits, or circuit breakers. Thus Solar Edge’s inverters are cheaper and faster to install than competing products.
There could be a huge market for the inverter because of plans for increased electric vehicles. Volkswagen AG (OTC: VLKAY); for instance, plans to market 27 electric models by 2022.
Moreover, Ford (NYSE: F) is planning to invest $11 billion in EVs and build 16 fully electric models by 2022, The Verge reports. The first all-electric Ford; the Mach 1 SUV, is scheduled for unveiling next year. In addition, General Motors (NYSE: GM) plans to offer 23 electrics by 2023.
Significantly, just three automakers plan to have 66 electric models on the road by 2023. Therefore, SolarEdge will have a lot of customers for its EV inverters.
Importantly, SolarEdge is entering the battery business. SolarEdge has acquired Kokam Co. Lt., a South Korean manufacturer of lithium-electric batteries. Lithium electric or Li-Ion cells power most electric vehicles including the Tesla Motors (NASDAQ: TSLA) products. All the new electric vehicle production will increase demand for Li-Ion cells.
Is SolarEdge Making Money?
Okay, so SolarEdge (NASDAQ: SDEG) has a lot of potentials but is it making money. Surprisingly, the answer is yes.
SolarEdge reported $227.12 million in revenues, a gross profit of $81.95 million, $40.67 million in operating income, and $34.57 million in net income for 2nd Quarter 2018. That sets SolarEdge apart from most clean energy companies, which lose money.
In addition, SolarEdge’s revenues grew at a rate of 66.88% during 2nd Quarter 2018. Interestingly, SolarEdge has some cash flow. It recorded an operating cash flow of $43.89 million and a free cash flow of $33.83 million on 30 June 2018.
SolarEdge even has some money in the bank. It reported $216.59 million in cash and equivalents and $134.82 million in short-term investments on June 30, 2018. Therefore, SolarEdge had $351.41 million in cash.
SolarEdge’s Bright Future
SolarEdge’s future is bright because of all the potential demand for solar electric systems in emerging nations.
The World Bank estimates that only 42.8% of people in Sub-Saharan Africa and 44.8% of the people in the globe’s least developed nations have electricity. Moreover, 12.6% of the world’s population lacks access to electricity, the World Bank calculates.
Hence there are 954.8 million (nearly a billion) potential customers for solar electric systems in the world. To explain, 954.8 million is 12.4% of the world’s estimated population of 7.7 billion.
Each of those solar systems will require an inverter if its owner wants to connect appliances or electronics to it. Notably, companies like Mobisol and Off-Grid Electric are selling solar electric systems to people in areas of Africa that lack electricity.
More importantly, Mobisol plans to sell a full range of electronics including TV sets and appliances to those people. Mobisol’s customers will pay using digital currency through PAYG (pay as you go) plans and mobile phones.
Plans to Scrap Gas and Diesel cars will boost SolarEdge
Beyond emerging markets there are the nations with plans to eliminate gasoline or diesel burning vehicles by 2040.
For instance, Germany, France and the United Kingdom want to scrap diesel and petrol by 2040. The People’s Republic of China is even ambitious it wants to stop the sale of new internal combustion engines by 2030.
Such plans are great news for SolarEdge because electric vehicles are the most likely replacement for gas and diesel cars. Obviously, the drivers of those EVs will need to charge them so they will need an inverter. SolarEdge already has that invertor on the market.
Is SolarEdge a Value Investment?
SolarEdge (NASDAQ: SEDG) looks like a classic Warren Buffett value investment.
To explain, SolarEdge is a somewhat obscure and unsexy company that makes technology and components an industry needs to stay in business. Moreover, it is relatively cheap but makes money. SolarEdge shares were trading at $40.55 on 18 October 2018.
However, SolarEdge is a lousy investment for average people because it pays no dividend. Presently, SolarEdge is a speculative stock for persons that want to buy and hold for a longtime.
It will be several years at the earliest before mass markets for solar power systems and inverters develop. Until then, SolarEdge will need to spend a lot of money to increase production and upgrade its technology. Therefore, do not expect a dividend from this company for the foreseeable future.
If you are looking for a cheap speculative clean energy stock that makes money, SolarEdge (NASDAQ: SDEG) deserves a look. SolarEdge is a rare clean energy company that could develop into a value investment.
