Rising Global Rates And Fierce Competition Will Dent Solar Demand

Key Takeaways

• Rising financing costs, policy uncertainty, and trade risks threaten demand, revenue stability, and market expansion for the company's solar inverters.
  
• Intensifying low-cost competition and lagging technological innovation risk compressing margins, eroding market share, and undermining long-term earnings potential.
  
• Strong demand, operational restructuring, and a strategic focus on energy storage and grid services position the company for improved profitability and long-term growth despite regional uncertainties.

Catalysts

Develops, produces, and sells PV and battery inverters, transformers, chokes, monitoring systems for PV systems, and charging solutions for electric vehicles in Germany and internationally.

• The rapid rise in global interest rates is expected to further increase project financing costs for solar installations in 2025 and beyond, making large-scale solar projects economically less attractive, and directly suppressing demand for SMA Solar Technology's inverters-putting significant pressure on both future revenue and order intake.
  
• Persistent uncertainty and potential rollbacks in government incentives and trade policies, especially in key markets like the US and Europe, are likely to slow the pace of solar adoption and result in project delays or cancellations, restricting SMA's total addressable market and limiting long-term top-line growth.
  
• The ongoing intensification of competition from low-cost global, particularly Chinese, manufacturers is anticipated to accelerate commoditization in the inverter market, leading to sustained downward pricing pressure and eroding SMA's pricing power. This will drive continuing margin compression and fundamentally jeopardize the company's net earnings potential.
  
• SMA's heavy dependency on the Large Scale segment-and, within that, its exposure to US tariff and trade uncertainties-creates elevated risk of volatile revenues, as any further trade barriers or indirect effects on associated solar modules and batteries may rapidly diminish project viability and resulting sales volumes.
  
• Failure to keep pace with rapid technological advancements, such as the integration of energy storage, digitalization, and smart grid automation, may leave SMA's current product portfolio vulnerable to obsolescence, reducing market share and constraining both revenue and net margins in the coming years.

SMA Solar Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on SMA Solar Technology compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SMA Solar Technology's revenue will decrease by 1.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -9.4% today to 4.3% in 3 years time.
• The bearish analysts expect earnings to reach €61.4 million (and earnings per share of €1.76) by about July 2028, up from €-140.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from -4.9x today. This future PE is lower than the current PE for the GB Semiconductor industry at 17.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

SMA Solar Technology Future Earnings Per Share Growth

Risks

• The Large Scale segment showed very strong revenue growth across all regions and maintained a high order backlog of €960 million, pointing to robust demand and supporting sustained group-level revenues over the next year.
  
• Management is executing a restructuring and transformation plan targeting €150 million to €200 million EBIT improvement, with cost savings (particularly on personnel) already tracking ahead of schedule, which could lead to a significant boost in net margins and overall earnings.
  
• SMA's product and service offering positions it well for the ongoing shift toward energy storage and grid stabilization projects, with management highlighting unique strengths in battery storage integration and advanced grid functionality; this could unlock higher-margin revenue streams as grid stability becomes more critical globally.
  
• Despite near-term tariff uncertainty in the US, management is confident that order intake will recover strongly once the situation stabilizes, supported by strong customer relationships and ongoing local partnerships, which could drive revenue growth and mitigate regional risk.
  
• Free cash flow generation has materially improved, and the company expects to end the year with a very strong cash position despite upcoming restructuring outflows, indicating improved financial flexibility that could underpin investments in innovation and long-term earnings growth.

Valuation

• The assumed bearish price target for SMA Solar Technology is €15.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SMA Solar Technology's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €15.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €61.4 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 8.9%.
• Given the current share price of €19.7, the bearish analyst price target of €15.0 is 31.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.