SolarEdge Technologies, Inc. (SEDG) and Enphase Energy, Inc. (ENPH) are two of the leading solar companies operating in the clean energy sector. Both companies use Model Level Power Electronics in the production of solar panels, but have different inverter applications. While SEDG’s application is based on optimized inverter solutions, ENPH uses a micro inverter. With more and more people shifting to clean energy sources under the go-green initiative to combat climate change, both companies have immense potential to become dominating players in the solar industry.
Both SEDG and ENPH have reported impressive gains over the past five years. While SEDG returned 1151.9% over this period, ENPH gained 7,306.4%. In terms of year-to-date performance as well, ENPH is the clear winner with 299.7% returns versus SEDG’s 213.3%. But which stock is the better buy now? Let’s find out.
ENPH started supplying Enphase IQ 7A microinverters to Australian and European markets from August 31st. It partnered with G-Store in Australia for smooth delivery and installation of Enphase inverters across the country.
On September 14th, ENPH announced construction of a building-integrated photovoltaic commercial solar project in Minneapolis. This high profiled building is built to rely completely on solar energy, with an array of 112 solar modules and ENPH micro inverters.
In the European markets, ENPH partnered with three companies — Carbomat group, Libra Energy and Solarclarity based in Belgium and Netherlands for distribution and installation of Enphase IQ 7 across the two countries.
On October 12th, ENPH announced partnership with Natura Living for development of commercial solar projects for PepsiCo Thailand. Under this agreement Natura Living installed a 60kW solar array with Enphase IQ 7 inverters in the PepsiCo building in Thailand.
SEDG launched Energy Hub inverters with prism technology earlier this year, which provides higher flexibility to users, as well as easier installation technology. SEDG recently raised $550 million through senior notes offering for meeting its general corporate expenses.
Recent Financial Results
SEDG’s revenues in the second quarter ended June 2020 improved 2% year-over-year to $331.90 million. Net income grew 11% from the same period last year to $36.70 million, while EPS increased 6.1% from the year-ago value to $0.70.
ENPH was adversely affected by the pandemic, as evident from its second quarter (ended June 2020) results. However, ENPH managed to generate $125.54 million in revenue and $10.85 million in operating income. The company reported a record non-GAAP gross margin of 39.6%. The fair value changes in the ENPH’s convertible notes, as the stock prices increased, led to a one-time non-cash charge of $59.70 million, resulting in net loss for the quarter.
Past and Expected Financial Performance
SEDG’s revenue and total assets grew at a CAGR of 48% over the last three years. The company’s EPS grew at a CAGR of 33.3% over this period. The market expects SEDG’s EPS to grow 30.6% next year and at a rate of 20% per annum over the next five years. Its revenue is expected to increase 4.9% in the current year, and 22.6% next year.
ENPH’s revenue and total assets increased at a CAGR of 32.7% and 82.7%, respectively, over the past three years. Its EPS rose 1238.4% year-over-year.
The market expects ENPH’s EPS to grow 43.3% next year, and at a rate of 35.4% per annum over the next five years. The consensus revenue estimates indicate a 17.9% increase in the current year, and 55.6% next year.
Thus, ENPH is in an advantageous position in terms of earnings and revenue outlook.
SEDG’s trailing 12-month revenue is 2.2 times what ENPH generates. However, ENPH is more profitable with a gross margin of 37.7% versus SEDG’s 33%.
Also, ENPH’s ROE and ROA of 69.5% and 11.4% compare favorably with SEDG’s 21.6% and 10.6%, respectively.
Thus, ENPH has an edge over SEDG here as well.
In terms of forward P/E ENPH is currently trading at 186.63x, 83.7% more expensive than SEDG, which is currently trading at 101.57x. ENPH is also more expensive in terms of forward PEG (2.57x versus SEDG’s 3.07x) and price / cash flow (76.56x versus SEDG’s 46.84x).
In terms of trailing 12-month price/sales, ENPH’s 17.89x is 95.1% more expensive than SEDG’s 9.17x.
Though ENPH is relatively more expensive, the premium valuation is justified due to its higher EPS and revenue growth potential.
Both ENPH and SEDG are rated “Strong Buy” in our proprietary POWR Ratings system. Here’s how the four components of our overall POWR Rating are graded for both of these stocks:
ENPH has an “A” for Trade Grade, Buy & Hold Grade, and Peer grade, and “B” for Industry Rank. In the 15-stock Solar industry, ENPH is currently ranked #2.
SEDG holds an “A” for Trade Grade and Buy & Hold Grade, and “B” for Peer Grade and Industry Rank. It is also ranked #1 out of 15 stocks in the Solar industry.
While both ENPH and SEDG are attractive bets in the current market, ENPH is the better buy here. Despite having a lower market capitalization, ENPH has shown triple-digit growth over the past few years, clearly outperforming SEDG. ENPH also has a higher growth potential as reflected in its higher revenue and earnings outlook, which compensates for its slightly higher valuation.
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SEDG shares were trading at $299.08 per share on Tuesday afternoon, up $1.14 (+0.38%). Year-to-date, SEDG has gained 214.52%, versus a 10.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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