Tariffs are going to cast clouds upon the solar industry. That was the initial reaction. And, in some cases, tariffs might ding a company catering to low-margin projects like utilities; however, there are opportunities. If one looks hard enough, they may find opportunities like SolarEdge Technologies (SEDG) , mentioned as a semiconductor name to consider back in January.
SolarEdge provides inverter solutions to customers in solar energy. The company offers power optimizers, inverters, and a cloud-based monitoring platform. It serves residential solar installations as well as commercial. While not focused on the utility market, it does offer some small scale solar installations to utility customers.
SEDG delivered a jaw-dropping $0.85 per share on $189.3 million last quarter when Wall Street only expected $0.65 on $180.71 million. Quarter-over-quarter growth of 14% along with annual growth of 70%+ have become the norm. If that weren't enough, SolarEdge has no debt against $345 million in cash and marketable securities. That means 14% of the company's value is cash which makes the growth numbers even more impressive. What's more, SolarEdge had to manage around component shortages last quarter and still blow away numbers.
Outside of Huawei, SolarEdge faces little competition on the residential side of solar, and that Huawei competition is mainly in the EU.
Despite using an older solar strategy, SolarEdge has found a new angle. The company makes a string inverter, which is a central inverter that connects a group of solar panels together. While many companies offer microinverters these days, SolarEdge was able to reinvigorate the string inverter by upgrading the technology to achieve superior efficiency.
The biggest opportunity lies in energy storage. If companies can create a situation where storage becomes cheap enough, it is possible a homeowner could move off-the-grid. Currently, most solar users sell excess energy back to utility providers at the rate the utility company charges them to use energy. This makes the utility company's grid a de facto storage; however, that is changing. We are seeing rates fluctuate based on time-of-day or demand, which creates opportunity.
If a solar system can evolve into a smart energy system where the home draws on solar power when demand or time rates are highest, then revert to the utility grid when rates are cheapest, the home energy system could flourish. SolarEdge, with its cloud-based monitoring platform and efficient systems is a front-runner to capture this opportunity.
I'd prefer to focus on the long-term here. SEDG will be volatile, but a long-term call option rather than stock is attractive. Not only will it define risk, but with an implied volatility currently well below historical averages, SEDG calls are not "expensive."
-- Buy to open 1 SEDG Jan. 18, 2019, $50 call at $13.80 or less
Net Cost: $1,380
Max Risk: $1,380
Max Reward: Unlimited
Days Until Expiration: 297
Tim Collins writes each day for Real Money Pro, our site for active stock and options traders. Click here to get more columns and trade ideas like this from Collins, Mark Sebastian, Doug Kass and others.