SolarEdge Technologies, Inc. (NASDAQ:SEDG) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 64% share price drop in the last twelve months.
In spite of the firm bounce in price, SolarEdge Technologies may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 3.6x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
Check out our latest analysis for SolarEdge Technologies
How SolarEdge Technologies Has Been Performing
While the industry has experienced revenue growth lately, SolarEdge Technologies' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on SolarEdge Technologies will help you uncover what's on the horizon.How Is SolarEdge Technologies' Revenue Growth Trending?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like SolarEdge Technologies' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 59% decrease to the company's top line. As a result, revenue from three years ago have also fallen 59% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 21% per annum growth forecast for the broader industry.
In light of this, it's peculiar that SolarEdge Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
Shares in SolarEdge Technologies have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
To us, it seems SolarEdge Technologies currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
Before you take the next step, you should know about the 2 warning signs for SolarEdge Technologies (1 makes us a bit uncomfortable!) that we have uncovered.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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