Why SolarEdge Stock Is Surging This Week

SolarEdge (NASDAQ: SEDG) stock saw strong bullish momentum in this week's trading. The stock gained 7.7% across the period and had been up as much as 18.4% before a bearish turn for the broader market caused a retracement. The S&P 500 index closed out the week down 1.7%, and the Nasdaq Composite was down 2.3%.

SolarEdge's valuation rose following the company's fourth-quarter earnings release, which arrived with higher-than-expected sales. The stock also got a boost from bullish coverage from analysts following the Q4 report.

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SolarEdge stock soars on Q4 sales beat and free-cash-flow surprise

Solar Edge reported a non-GAAP (adjusted) loss per share of $3.52 on revenue of $196.2 million in the quarter. Sales performance came in roughly $7 million better than the average Wall Street analyst estimate had forecasted, but the company's adjusted loss per share was $1.86 higher than the forecast.

Revenue was down 17% year over year in the period, but the business managed to post $26 million in free cash flow -- far exceeding the market's expectations. SolarEdge also said it anticipates posting positive free cash flow this year, and investors responded by pouring into the stock.

Analysts raise price targets after SolarEdge's Q4 report

Following the Q4 report, SolarEdge stock saw a wide range of analyst price target increases. Of the major Wall Street analyst firms to weigh in on the stock after earnings, UBS was the most upbeat, with analyst Jon Windham raising the firm's one-year price target from $18 per share to $22 per share.

The analyst cited some favorable demand indicators and cost-cutting initiatives as reasons for the target hike. On the other hand, UBS still maintained a neutral rating on the stock, and Windham pointed to lingering inventory glut in Europe and Tesla's market share gains in California as near-term challenges.

Despite the pop this week, SolarEdge stock is still down roughly 76% over the last year of trading. For the first quarter, the company is guiding for sales to come in between $195 million and $215 million, with the midpoint of the guidance range suggesting sequential quarterly sales growth of roughly 4.5%. While it's unclear yet whether demand has actually bottomed, the stock could see substantial gains if the company can string together more quarters delivering sequential growth.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.