Why We're Not Concerned About SolarEdge Technologies, Inc.'s (NASDAQ:SEDG) Share Price
NASDAQ:SEDG) as a stock to avoid entirely with its 59.8x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.” data-reactid=”28″>When close to half the companies in the United States have price-to-earnings ratios (or “P/E’s”) below 18x, you may consider SolarEdge Technologies, Inc. (NASDAQ:SEDG) as a stock to avoid entirely with its 59.8x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
SolarEdge Technologies certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
Check out our latest analysis for SolarEdge Technologies ” data-reactid=”30″>Check out our latest analysis for SolarEdge Technologies
free report on SolarEdge Technologies will help you uncover what’s on the horizon.” data-reactid=”47″>Want the full picture on analyst estimates for the company? Then our free report on SolarEdge Technologies will help you uncover what’s on the horizon.
Is There Enough Growth For SolarEdge Technologies?
There’s an inherent assumption that a company should far outperform the market for P/E ratios like SolarEdge Technologies’ to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 49%. Pleasingly, EPS has also lifted 135% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the twelve analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13% per annum, which is noticeably less attractive.
In light of this, it’s understandable that SolarEdge Technologies’ P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On SolarEdge Technologies’ P/E
Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of SolarEdge Technologies’ analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn’t great enough to justify a lower P/E ratio. It’s hard to see the share price falling strongly in the near future under these circumstances.
3 warning signs for SolarEdge Technologies that you should be aware of.” data-reactid=”56″>Don’t forget that there may be other risks. For instance, we’ve identified 3 warning signs for SolarEdge Technologies that you should be aware of.
our interactive list of high quality stocks to get an idea of what else is out there.” data-reactid=”57″>If these risks are making you reconsider your opinion on SolarEdge Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.
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