The Market Doesn't Like What It Sees From SolarEdge Technologies, Inc.'s (NASDAQ:SEDG) Revenues Yet As Shares Tumble 28%

To the annoyance of some shareholders, SolarEdge Technologies, Inc. (NASDAQ:SEDG) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

After such a large drop in price, SolarEdge Technologies may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 4.1x and even P/S higher than 10x 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

What Does SolarEdge Technologies' P/S Mean For Shareholders?

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 you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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?

In order to justify its P/S ratio, SolarEdge Technologies would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 59%. As a result, revenue from three years ago have also fallen 4.5% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the analysts watching the company. With the industry predicted to deliver 25% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why SolarEdge Technologies' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From SolarEdge Technologies' P/S?

SolarEdge Technologies' P/S looks about as weak as its stock price lately. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that SolarEdge Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for SolarEdge Technologies that you should be aware of.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.