The Market Doesn't Like What It Sees From SolarEdge Technologies, Inc.'s (NASDAQ:SEDG) Revenues Yet As Shares Tumble 33%
The SolarEdge Technologies, Inc. (NASDAQ:SEDG) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 110%.
Following the heavy fall in price, SolarEdge Technologies may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 5.4x and even P/S higher than 12x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for SolarEdge Technologies
What Does SolarEdge Technologies' P/S Mean For Shareholders?
Recent times haven't been great for SolarEdge Technologies as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
Keen to find out how analysts think SolarEdge Technologies' future stacks up against the industry? In that case, our free report is a great place to start.How Is SolarEdge Technologies' Revenue Growth Trending?
In order to justify its P/S ratio, SolarEdge Technologies would need to produce anemic growth that's substantially trailing the industry.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 62% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 14% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 27% growth per year, the company is positioned for a weaker revenue result.
In light of this, it's understandable that SolarEdge Technologies' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
SolarEdge Technologies' P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of SolarEdge Technologies' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 1 warning sign for SolarEdge Technologies that you need to be mindful of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.