Sun on the run
05/08/18

Here comes the sun.

With crude oil prices topping $70/barrel for the first time in three-and-a-half years after a nearly one-year uptrend, market talk is bound to turn to alternative fuels.

Even if that wasn’t the case, SolarEdge Technologies (SEDG) may have been the topic of trade chatter, given its recent performance. The stock spent the last couple of days bouncing off the bottom of its recent trading range (around $51) and rushing towards its top (around $57)—a 7.5% gain with earnings scheduled for after Wednesday’s close.

SolarEdge Technologies (SEDG), 1/24/2018 – 5/7/18

Source: OptionsHouse

The stock is up a remarkable 76% since February 9, with a good chunk of those gains occurring after the company’s last quarterly performance release on February 14. Those numbers included a 30% earnings beat on nearly $190 million in revenue, which has been expanding healthily since the stock started trading in 2015. After jumping 24% in one day, the stock just kept going, eventually peaking on April 10 above $59.

Beside the potential attractiveness of solar energy when crude oil is pushing to the upside, SEDG may have another edge. The company specializes in solar panel components known as “inverters” (which essentially converts a solar panel’s DC current into AC current), in addition to solar monitoring software for residential and commercial customers. This business is much less sensitive than solar utility companies to the White House’s solar tariffs.1  

Also, there is some evidence that tariffs on foreign solar technology have the potential to boost the domestic solar business such a SolarEdge.2

The stock’s dramatic rally over the past 18 months (see weekly chart below) and its recent consolidation may lead some investors to believe most of the “good news” is already baked into its price, but SEDG does have a history (albeit a brief one) of gaining ground in the week after earnings releases.3 And a push above its recent highs (regardless of the specifics of Wednesday’s numbers) has the potential to trigger a short-covering rally: Traders who have shorted the stock in the expectation of a price drop may be forced to buy back their shares, which could especially drive up prices if investors also decide the stock’s a longer-term buy.

SolarEdge Technologies (SEDG), 7/20/15 – 5/7/18

Source: OptionsHouse

After that, it remains to be seen if it the stock has enough gas left in the tank—sorry, sun left in its cells—to fuel the return of its long-term uptrend.

Market Mover Update: After selling off more than 8% on Thursday after Wednesday’s earnings call, Tesla (TSLA) had rebounded more than 7% off its low part way through yesterday’s trading session.

 

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1 Barron’s. SunPower Is Sliding. SolarEdge Is Flying. This Is Why. 2/15/18.

Zacks.com. 3 Solar Stocks to Buy On Trump Tariff. 1/23/18.

3 StreetInsider. SolarEdge Technologies (SEDG) Earnings. 5/7/18.