SolarEdge (SEDG)

Solar power systems company SolarEdge (NASDAQ:SEDG) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 44.5% year on year to $340.2 million. On the other hand, next quarter’s revenue guidance of $325 million was less impressive, coming in 4.7% below analysts’ estimates. Its non-GAAP loss of $0.31 per share was 26.8% above analysts’ consensus estimates.

Company Overview

Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.

Renewable energy companies are buoyed by the secular trend of green energy that is upending traditional power generation. Those who innovate and evolve with this dynamic market can win share while those who continue to rely on legacy technologies can see diminishing demand, which includes headwinds from increasing regulation against “dirty” energy. Additionally, these companies are at the whim of economic cycles, as interest rates can impact the willingness to invest in renewable energy projects.

Competitors in the solar industry include Enphase Energy (NASDAQ:ENPH), SunPower (NASDAQ:SPWR), and Sunrun (NASDAQ:RUN).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. SolarEdge’s demand was weak over the last five years as its sales fell at a 7.2% annual rate. This wasn’t a great result and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. SolarEdge’s recent performance shows its demand remained suppressed as its revenue has declined by 45.7% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its number of megawatts shipped, which reached 1,471 in the latest quarter. Over the last two years, SolarEdge’s megawatts shipped averaged 20.7% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, SolarEdge reported magnificent year-on-year revenue growth of 44.5%, and its $340.2 million of revenue beat Wall Street’s estimates by 1.7%. Company management is currently guiding for a 65.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 29.4% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.

SolarEdge has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.1% gross margin over the last five years. That means SolarEdge paid its suppliers a lot of money ($83.88 for every $100 in revenue) to run its business.

In Q3, SolarEdge produced a 21.2% gross profit margin, marking a 329.8 percentage point increase from -309% in the same quarter last year. SolarEdge’s full-year margin has also been trending up over the past 12 months, increasing by 77.4 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

SolarEdge’s high expenses have contributed to an average operating margin of negative 15.1% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, SolarEdge’s operating margin decreased by 59.7 percentage points over the last five years. SolarEdge’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, SolarEdge generated a negative 10.3% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for SolarEdge, its EPS declined by 26.2% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Diving into the nuances of SolarEdge’s earnings can give us a better understanding of its performance. As we mentioned earlier, SolarEdge’s operating margin expanded this quarter but declined by 59.7 percentage points over the last five years. Its share count also grew by 11.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For SolarEdge, its two-year annual EPS declines of 65.5% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, SolarEdge reported adjusted EPS of negative $0.31, up from negative $15.78 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects SolarEdge to improve its earnings losses. Analysts forecast its full-year EPS of negative $5.78 will advance to negative $0.32.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

While SolarEdge’s free cash flow broke even this quarter, the broader story hasn’t been so clean. SolarEdge’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 8.3%, meaning it lit $8.29 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that SolarEdge’s margin expanded by 2.4 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise.

SolarEdge broke even from a free cash flow perspective in Q3. This result was good as its margin was 57.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

SolarEdge’s five-year average ROIC was negative 31.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, SolarEdge’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

SolarEdge is a well-capitalized company with $546.1 million of cash and $417.5 million of debt on its balance sheet. This $128.5 million net cash position is 6.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see SolarEdge beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 8.3% to $29.19 immediately following the results.

Updated: December 4, 2025 at 10:37 PM EST

Are you wondering whether to buy SolarEdge or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

SolarEdge doesn’t pass our quality test. First off, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

SolarEdge’s forward price-to-sales ratio is 1.4x. The market typically values companies like SolarEdge based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $33.22 on the company (compared to the current share price of $32.11).