Why Investors Shouldn't Be Surprised By SolarEdge Technologies, Inc.'s (NASDAQ:SEDG) 28% Share Price Plunge

Unfortunately for some shareholders, the SolarEdge Technologies, Inc. (NASDAQ:SEDG) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

Although its price has dipped substantially, SolarEdge Technologies' price-to-sales (or "P/S") ratio of 1.2x might still make it look like a strong buy right now compared to the wider Semiconductor industry in the United States, where around half of the companies have P/S ratios above 4.2x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for SolarEdge Technologies

How Has SolarEdge Technologies Performed Recently?

SolarEdge Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SolarEdge Technologies.

Do Revenue Forecasts Match The Low P/S Ratio?

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 4.3% decrease to the company's top line. Even so, admirably revenue has lifted 104% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% per year during the coming three years according to the analysts following the company. That's not great when the rest of the industry is expected to grow by 25% per annum.

With this in consideration, we find it intriguing that SolarEdge Technologies' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On SolarEdge Technologies' P/S

SolarEdge Technologies' P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's clear to see that SolarEdge Technologies maintains its low P/S on the weakness of its forecast for sliding revenue, 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.

You always need to take note of risks, for example - SolarEdge Technologies has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on SolarEdge Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.