Today's fluctuations in SolarEdge's stock price, leading to a drop followed by a recovery, sparked interest due to related movements in Sunnova and Daqo New Energy's shares as well.
SolarEdge (SEDG -5.35%) stock is giving investors a rollercoaster ride on Thursday, and it's not just SolarEdge investors feeling the effects. Following a massive earnings miss reported last night, SolarEdge shares opened 13% lower than Wednesday's closing price. The shares kept falling in the opening minutes, before making a surprising turnaround, nearly recovering their losses, only to slide again.
As of 11:15 a.m. ET, SolarEdge's stocks are down once more, but by only 3.3%. Meanwhile, other companies in the solar industry are making significant moves. For instance, China's Daqo New Energy (DQ -0.52%) is up 6.8% after a major fall the previous day. Similarly, Sunnova Energy International (NOVA -4.91%), a company that provides residential solar energy systems and serves consumers, is also bouncing back from a significant loss yesterday, with a 8.5% rise.
SolarEdge's Q3 Earnings
SolarEdge's early slide is most easily explainable. In last night's report, SolarEdge reported a staggering 64% decrease in Q3 sales compared to the previous year, despite a 65% surge in the cost of goods sold. Despite SolarEdge's cost-cutting measures in sales, marketing, research, and development, these figures moving in opposite directions resulted in a $1.2 billion loss on the bottom line, nearly 20 times the loss from the previous year and significantly more than analysts predicted.
The analysts seemed to have overlooked SolarEdge's $1 billion asset impairment charge in the quarter. Without this charge, the loss would have been around $202 million. While SolarEdge still missed analyst forecasts for both sales and earnings, the deficit would have been smaller.
Investors seem to be willing to forget SolarEdge's large loss after the initial shock, provided they now understand the cause.
Daqo and Sunnova's Rise
Unlike SolarEdge, neither Daqo nor Sunnova had any major events to credit for their stock price recovery. In fact, Sunnova faced a downgrade by Guggenheim analysts, who changed their rating from buy to neutral, citing concerns that a second-term President Donald Trump might increase tariffs on imported polysilicon from Daqo and solar panels required for Sunnova's operations.
These same concerns caused these stocks to sink nearly 8% in Daqo's market capitalization and more than 50% in Sunnova's on the previous day. With no positive news for either stock today, traders may be closing their short positions and pocketing their profits, or investors might be buying on the theory that the sellers overreacted, or both.
Personally, I'm unsure if either stock is safe from further sell-offs. Neither Daqo nor Sunnova is currently in the black, and analysts polled by S&P Global Market Intelligence didn't expect either one to turn a profit the following year. With Trump tariffs now a possibility, I would be cautious about investing in either.
Should You Buy SolarEdge Stock?
Similarly, I would approach SolarEdge stock with caution. Although profitable in the past, SolarEdge's massive asset write-off last night is a warning sign, possibly a reminder to investors that SolarEdge may not return to profitability until at least 2027.
In the short term, SolarEdge itself has posted a weak Q4 2024 sales outlook, with potential revenues as low as $180 million, or around 57% of Q4 2023 revenue, and a maximum 3% gross profit margin on those sales, which almost guarantees a significant GAAP net loss.
With these dismal current numbers and unfavorable future prospects, I fear SolarEdge stock may remain uninvestable for an extended period.
Despite SolarEdge's challenging financial situation, some investors might be exploring alternative strategies within the finance sector. They could consider diversifying their portfolios by investing in other companies in the solar industry that are currently performing better, such as Daqo New Energy or Sunnova Energy International. Careful analysis of these companies' financial health and market trends is crucial before making any investment decisions.
Moreover, considering the potential impact of political policies on the solar industry, careful monitoring of any updates regarding tariffs on imported polysilicon or solar panels is essential for both Daqo and Sunnova investors. Proactive risk management strategies, such as setting stop-loss orders or limiting investment amounts, can help mitigate potential losses in the event of further sell-offs.
