Analysts' sentiment has Workday (NASDAQ: WDAY) and SolarEdge (NASDAQ: SEDG) down, but the takeaways differ for each. On the one hand, a struggling business continues to lose money while its competitors fare better. On the other hand, a leading company that failed to meet inflated expectations has had its market reset. The share price will likely fall to new lows in the first scenario, although it is near a potential floor. In the second scenario, a pullback in price action today is an opportunity for investors tomorrow.
The Sun Goes Down on SolarEdge Technologies
Analysts are lowering their sentiment ratings and price targets for SolarEdge Technologies, and the trend is unlikely to end. The last earnings report was a train wreck, with revenue outperforming but down 80% compared to the prior year and losses mounting. Guidance was also weak, with revenue expected to fall significantly compared to last year to a level well below consensus.
The balance sheet is still capitalized, but its health could be better. At the current burn rate, it won’t be many quarters until bankruptcy for SolarEdge without another capital injection. Dilution is already an issue, with the share count rising compared to last year and warrants on the books. With capital in decline, further dilution should be expected, and there are more problems to be aware of. The business health and outlook for dilution have attracted short-sellers, which is another problem for investors. The short interest is running near 20% and is unlikely to fall without a positive catalyst, as no catalyst exists.
Out of 31 analysts tracked by MarketBeat with ratings on SolarEdge, 24 issued negative revisions in calendar Q2. That is a significant number of analysts showing a high level of conviction in a deteriorating outlook. The consensus sentiment is still firm at Hold, and the consensus price target suggests a 200% upside, but the freshest revisions include several downgrades to sell equivalents and $25 price targets. The $25 target may be low for the analysts' cycle, but it is too soon to tell.
Workday Falls Into a Buying Opportunity
Workday is the most downgraded stock in Q2, with 25 of the 27 analysts issuing negative revisions. The caveat for potential sellers is that the sentiment held firm at Moderate Buy as it has done for the last year, and the price target still implies sufficient upside to be attractive. The consensus rating is down compared to the previous quarter but only $10 or 3.5%. The takeaway from the analysts' activity is that sentiment is solid, and the range of price targets is narrowing to a tighter range near record levels.
The reason for the downshift in sentiment is the latest guidance. The company reduced its full-year outlook despite a solid quarter, sending a ripple of fear through the market. However, the new guidance calls for an impressive 17% YoY growth, and there is a silver lining. The company widened its margin expectation, setting itself up for leveraged performance later in the year and next. Looking further ahead, Workday is expected to sustain another year of high-teens growth and widen its margin in 2025.
The institutions provided a headwind for the market in Q2, selling on balance. However, the institutional interest remains solid at nearly 90% of the stock, and the balance of activity may shift now that the price action has been corrected. The 25% stock price correction has brought the market down to a critical moving average that aligns with long-term market support. Because the outlook is for growth and improving profitability, the stock should begin to put in its bottom soon.
Valuation has been a concern, but the multiples are coming back into alignment for this tech stock. Trading at 33x this year’s earnings is a bit high, but valuation improves to 28x relative to the 2025 outlook, and sustained growth is forecasted.
