SolarEdge – listed on the Nasdaq (ticker SEDG)

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In January 2018 we wrote about a company called SolarEdge. We described SolarEdge as having a significant technological advantage that, we believed, would help it dominate its market.  We held SolarEdge in our existing funds and subsequently purchased the stock for the Alpha Israel Fund.  It proved to be one of our most successful positons until we sold it recently, for reasons explained below.

SolarEdge is now a global leader in Smart Energy Technology, leveraging world-class engineering capabilities. With a relentless focus on innovation, SolarEdge developed the DC optimized inverter solution that changed the way power is harvested and managed in photovoltaic (PV) systems. The SolarEdge intelligent inverter solution maximizes power generation while lowering the cost of energy produced by the PV system, for improved RoI (Return on Investment). The trade war between the US and China has been a positive factor as it has helped SolarEdge become an even more dominant player in the solar inverter space after Chinese giant Huawei trimmed its US operations in June of last year.

When describing our approach to individual investments we often talk about process, discipline and milestones. SolarEdge is an excellent example of this. When we built our position in SolarEdge in the beginning of 2018, SolarEdge’s sales for FY17 were US$687m with an operating profit of US$92m. SolarEdge showed significant improvement when they reported results for FY18: sales had increased to US$937m and operating profit was US$140m.  These results, along with the understanding that the company was expanding its scope of products into the storage (batteries) segment of the industry, led us to increase our position in the company. In 2019 the company reported sales of US$1.4billion with operating profit of US$190m.

As we write this report, we can see the fruits of the company’s market dominance. Its first-half results for 2020 show sales of US$763m and operating profit of US$125m. Wall Street expected earnings of 53 cents on revenue of $319.6 million, however, the company reported earnings of 97 cents per share on revenue of $331.9 million, causing the stock to soar 15% and reach an all-time high share price of US$200.

We very much believe in the continued success of SolarEdge.  However, its current share price assumes continued future success in the residential sector, in which it already has a huge market share.  The company’s recent move into the commercial sector and plan to enter the utility sector are positives but also represent big challenges. Lastly, we have not yet seen much progress in the field of electric motors and are still waiting to see how their investment in the field of batteries plays out.

One day we might return to holding the company, it is just a matter of the right pricing and if the batteries gain momentum.  Without doubt, it has been a great investment. We take a lot of pride that it has revolutionized the solar industry by inventing a better way to collect and manage energy in PV systems.  Today it is a global leader in smart energy technology with a relentless focus on innovation.

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Pengana Capital Group