SolarEdge (NASDAQ: SEDG) stock is taking investors on a wild ride on Thursday -- but not just investors in SolarEdge stock. After reporting a gigantic earnings miss last night, shares of the Israeli solar inverter stock opened down 13% from Wednesday's closing price. The shares proceeded to fall further in the day's opening minutes, before turning around, gaining back (almost) all their losses -- then retreating again.
As of 11:15 a.m. ET, SolarEdge stock is down again, but only by 3.3%. At the same time, other companies in the solar industry are making big moves of their own. China's Daqo New Energy (NYSE: DQ) for example, is up 6.8% after suffering a big drop yesterday. And Sunnova Energy International(NYSE: NOVA), which operates residential solar energy systems and provides solar energy to consumers, is also bouncing back from a big loss yesterday, and now up 8.5%.
SolarEdge Q3 earnings
SolarEdge's early move lower is the easiest of these to explain. Last night, SolarEdge reported a stunning 64% decline in Q3 sales, compared to a year ago, even as its cost of goods sold soared 65%. Even with SolarEdge scrambling to cut its spending on sales, marketing, research, and development, these two numbers moving in opposite (and wrong) directions ended up costing SolarEdge $1.2 billion on the bottom line -- nearly 20 times its losses a year ago, and far more than analysts had forecast.
How did the analysts get things so wrong? Basically, they failed to anticipate SolarEdge taking a $1 billion asset impairment charge in the quarter. But for that charge, the company's loss would have been only $202 million or so. SolarEdge would still have "missed" analyst forecasts for both sales and earnings, but not by so much.
The good news here is that investors seem to be willing to forgive SolarEdge's big loss -- well, at least after they got over their initial shock they are -- now that they know what caused it.
Why Daqo and Sunnova are bouncing
In contrast to SolarEdge's earnings news, neither Daqo nor Sunnova had any big news happening today to explain their turnarounds in stock price. Well, no good news. Sunnova actually suffered a downgrade from analysts at Guggenheim, who cut the stock from buy to neutral on worries that a newly reelected President Donald Trump will raise tariffs on imported polysilicon from Daqo, and on solar panels that Sunnova needs to run its business.
These same worries lay behind sell-offs of both stocks yesterday, however, which subtracted nearly 8% from Daqo's market capitalization, and more than 50% from Sunnova's. In the absence of any good news on either stock today, therefore, it would appear that the reason these two stocks are rising is either because traders who successfully shorted the stocks in anticipation of Trump's victory are closing their short positions and pocketing their profits, or investors are jumping in on the theory that sellers overreacted yesterday, or both.
Personally, though, I'm not convinced either stock is safe from further sell-offs. Neither Daqo nor Sunnova is currently profitable after all. Analysts polled by S&P Global Market Intelligence weren't expecting either one to turn profitable next year, either -- and that was before the threat of Trump tariffs materialized.
With that threat now on the table, I'd be very leery of buying either one.
Is SolarEdge stock a buy?
For that matter, I'd be very careful about SolarEdge stock as well. While profitable in the past, SolarEdge's huge asset write-down last night was a wakeup call, and perhaps a reminder to investors that SolarEdge isn't expected to return to profitability before 2027 at the earliest.
Nearer-term, SolarEdge itself just warned that Q4 2024 sales could be as little as $180 million -- or about 57% of its Q4 2023 revenue -- and that even in a best-case scenario, SolarEdge will earn no more than a 3% gross profit margin on those sales. That basically guarantees a big generally accepted accounting principles (GAAP) net loss for the company.
Between its miserable current numbers and its future prospects dimming, I fear SolarEdge stock could remain uninvestible for years.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends SolarEdge Technologies. The Motley Fool has a disclosure policy.
