SolarEdge Technologies (NASDAQ:SEDG) stock is down 90% from where it stood one year ago. Not only does it mean the business has fallen on hard times but there are likely few investors left after the rout.
Yet Wall Street remains remarkably upbeat about SolarEdge stock. Depending upon who is counting, analysts have consensus price targets implying the residential solar inverter company will double or triple in value over the coming year.
Even those analysts with more grounded targets see plenty of upside ahead.
Still, if the dominoes fall into place as forecast and the bullish scenario plays out, don’t hang on. Instead, view it as a chance to deploy your money else into more profitable ventures.
Going From Bad to Worse
The stars have not aligned for SolarEdge Technologies. High interest rates caused the cost of financing new solar panel installations to become uneconomical. Sales of inverters, the devices that convert a solar panel’s direct current into alternating current that can be used in a home, plummeted.
SolarEdge’s solar segment revenue started collapsing in the third quarter of 2023 and only worsened since. With first-quarter 2024 segment sales down 33% year-over-year versus a 9% gain in the year-ago period, there is no reason to expect the current quarter’s results to be much better.
Indeed, management recently reiterated its Q2 earnings guidance, which forecast solar segment sales of $225 million to $255 million for the period.
That indicates a 75% drop at the midpoint. As the inverter maker may report results at the end of July or in early August, SolarEdge stock will not be turning higher soon.
Wall Street also isn’t expecting much improvement until 2025. Even if the Federal Reserve cuts interest rates sooner than expected, the solar industry’s recovery may be short-lived.
Solar Incentives On the Chopping Block
While interest rate cuts would be a positive development, a lot depends on their magnitude. A quarter percentage point reduction here and there won’t materially reduce the cost of financing a new solar installation.
Arguably, an even bigger threat would be a Republican sweep of the November elections.
They have promised to gut President Biden’s Inflation Reduction Act and former President Donald Trump has vowed to cut at least some of the green energy tax credits that have been enacted.
Other politicians have called for “dismantling … green corporate welfare.”
Trump has an ally in Tesla (NASDAQ:TSLA) CEO Elon Musk, who also backs eliminating subsidies for companies in the electric vehicle industry and elsewhere.
It is expected Musk may play an advisory role in a second Trump presidency. If Republicans control both houses of Congress and the White House, it will be an easy path to make good on those threats.
Of course, Republicans also threatened to undo former President Barack Obama’s Affordable Care Act during Trump’s first presidency and then largely did nothing.
However, environmental policy is much easier to repeal than health care as it would not have such sweeping impact on individuals.
There Is No Coming Back
SolarEdge Technologies finds itself in a very bad spot. It recently announced one of its customers declared bankruptcy and owes it $11.4 million. It will be a long time, if ever, that it receives payment.
The inverter maker followed that by announcing it was firing 400 employees. That comes on top of a previous 16% reduction of its workforce.
SolarEdge stock did get some good news, though. BoA Securities analyst Dimple Gosai raised her rating on the company to neutral from underperform. However, she also lowered her target price from $44 per share to $29.
Gosai believes the severe drop in SolarEdge stock was overdone. It prices in “an unlikely worst-case scenario of inventory write downs, a lack of recovery in the inventory channel congestion through ’25 and an inability to monetize the balance sheet,” according to Barron’s.
This despite SEDG CEO Zivi Lando saying the inventory issue is going to take time to work through. Even SolarEdge’s European market is under significant pressure.
There are no good options for SolarEdge Technologies on the horizon. That means any bump higher in SolarEdge stock should be used as an opportunity to cut your losses and run.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.