SolarEdge (SEDG) plunged last Friday when it posted unexpectedly weak preliminary Q3 sales. The firm said that substantial unexpected cancellations and pushouts of its existing backlog from European distributors hurt results. Why did that happen?
Inventory in the channels is higher than expected. The slow installation rates compounded problems. Investors thought that seasonal strength in higher installation rates at the end of the summer would repeat. Instead, the solar energy provider said that gross margin and operating income will not even meet the lower end of its prior guidance.
Drawing down inventory will continue well into Q4.
The transition to clean energy is not transitioning. The economic reality is poor for the energy sector. Inflationary forces are eating into affordability. People cannot pay a premium to adopt SolarEdge products. Furthermore, the government will reduce its support for the industry. They have mountains of public debt. Expect fewer government subsidies and tax rebates for the sector. This will send clean energy stocks like Enphase (ENPH), SunPower (SPWR), Array Technologies (ARRY), and First Solar (FSLR) lower, too.
Bargain hunters might buy SEDG stock at the 16x price-to-earnings ratio. But First Solar is also cheap on a forward 11.7x P/E basis.
Avoid solar energy stocks for at least the next two quarters.
