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Table of Contents:
- Introduction
- Key Points
- Block
- SolarEdge Technologies
- Bullish Price Targets
- Block’s Growth Story
- Square Ecosystem
- Cash App Ecosystem
- Financial Results
- Growth Strategies
- SolarEdge’s Growth Story
- Products and Market Position
- Recent Financial Results
- Industry Growth Outlook
- Valuation and Upside Potential
- Conclusion
- FAQ
Introduction
The stock market’s rough September doesn’t change the bright prospects for certain growth stocks. According to Wall Street analysts, Block Inc. (SQ) and SolarEdge Technologies Inc. (SEDG) have huge upside potential over the next 12 months.
Median price targets imply 93% returns for Block and 127% returns for SolarEdge. While targets are just estimates, the optimism is well-founded given these companies’ market positions and growth strategies. Now looks to be an opportune time to buy into their long-term growth stories while valuations remain reasonable.
Key Points
Block
Block, formerly known as Square, operates two thriving ecosystems — Square for sellers and Cash App for consumers. The Square ecosystem provides integrated hardware, software, and financial services to help merchants manage their omnichannel businesses. Cash App offers mobile banking, investing, and commerce features to simplify personal finance.
In Q2 2022, Block beat expectations with 27% gross profit growth and 117% earnings growth. It continues gaining momentum by expanding its seller and Cash App ecosystems. Block pegs its total addressable market at $190 billion in gross profit. Shares trade at just 5.9x gross profit, the cheapest valuation in five years, presenting a compelling buying opportunity.
SolarEdge Technologies
SolarEdge is a leading provider of solar power optimization systems and inverters. It also offers energy storage, monitoring software, and EV chargers. The company grew Q2 2022 revenue 36% and earnings 176% year-over-year. However, near-term headwinds have dragged SEDG 65% below its all-time high.
Yet long-term growth prospects remain strong. The solar market is forecast to grow 16% annually through 2030. With its solid market position, SolarEdge could grow revenue at 20%+ yearly. Its valuation of 2.1x sales looks inexpensive next to a three-year average of 7.5x. Patient investors can capitalize on the current discounts.
Bullish Price Targets
Wall Street analysts see substantial upside for both stocks despite recent market volatility. The median 12-month price target for Block is $86, representing 93% upside from the current $44 share price. For SolarEdge, the median target is $290, representing 127% upside from around $129 currently.
While targets are merely estimates, the strong growth trajectories for both companies support the optimistic projections. Investors should dig deeper into their long-term growth stories.
Block’s Growth Story
Square Ecosystem
Block’s Square ecosystem integrates hardware, software, and financial services into a cohesive commerce platform for sellers. This streamlined approach eliminates the hassle of complex integrations required when piecing together hardware, software, and banking services from different vendors.
Square’s suite empowers sellers to manage operations across in-person and online channels. In Q2 2022, mid-market sellers (over $500K in annual sales) accounted for 40% of gross payment volume, up from 35% two years ago. International sellers drove 16% of gross profit, up from 8% two years prior, demonstrating Block’s momentum in larger businesses and overseas markets.
Cash App Ecosystem
Meanwhile, Cash App consolidates personal finance features into a user-friendly digital wallet app. Its mobile-first delivery helps Cash App provide banking services at a fraction of the cost of traditional banks. This cost advantage allows Cash App to profitably serve lower-income consumers overlooked by legacy institutions.
Cash App was the most downloaded digital wallet among U.S. consumers last year, underscoring its popularity, especially among younger demographics. Tapping into underserved markets while accelerating network effects positions Cash App for continued rapid adoption.
Financial Results
In Q2 2022, Block’s gross profit climbed 27% to $1.9 billion, and adjusted EPS skyrocketed 117% to $0.39. The company continues gaining share in its $120 billion Square and $70 billion Cash App addressable markets. With its ecosystems expanding, Block expects similar growth momentum in coming years.
Growth Strategies
Block is pushing Square upmarket and overseas, opening new growth runways. Cash App Pay’s recent integration with Stripe and Adyen extends its acceptance network, making the wallet more useful for consumers and incentivizing further adoption. Combined with reasonable valuations, Block’s growth strategies support substantial upside, per analysts’ 93% median target.
SolarEdge’s Growth Story
Products and Market Position
SolarEdge makes power optimizers, inverters, energy storage systems, monitoring software, and EV chargers for residential and commercial solar markets. It holds the #2 global market share in solar inverters. Its power optimizers mitigate energy losses from panel mismatches, helping cement SolarEdge as a premium solar brand.
Beyond its core offerings, SolarEdge has leveraged its strong market position to expand into adjacent categories like energy management and e-mobility. This diversification provides new growth avenues as the solar industry evolves.
Recent Financial Results
SolarEdge delivered standout Q2 2022 results, with revenue up 36% and EPS skyrocketing 176% year-over-year. However, guidance suggests slowing growth in the near term due to macroeconomic challenges. While its business may face temporary headwinds, SolarEdge retains strong competitive positioning within a secular growth industry.
Industry Growth Outlook
Analysts at Grand View Research forecast the global solar systems market to expand at a 16% CAGR through 2030 as solar adoption accelerates worldwide. With its strong brand and global production network, SolarEdge is well-positioned to capture a sizable chunk of this growth.
Morgan Stanley estimates SolarEdge can sustain over 20% annual revenue growth through decade’s end, surpassing overall industry expansion. The company’s deep expertise in power optimization provides a durable competitive edge.
Valuation and Upside Potential
Despite its leadership and long runway for growth, SEDG stock trades at just 2.1x sales, a bargain compared to its three-year average multiple of 7.5x. If SolarEdge grows revenue at a conservative 15% annually over the next five years, shares would return 10.2% per year even if its multiple contracted to 1.6x sales.
SolarEdge’s discounted valuation coupled with strong secular tailwinds support Wall Street’s sunny outlook. The 127% median upside projection may be aggressive, but patient investors can still expect market-beating returns from SEDG stock over the long haul.
Conclusion
Recent stock market volatility has dragged down high-quality names like Block and SolarEdge. But Wall Street remains bullish on their long-term prospects, with upside projections of 93% and 127% respectively. Despite some near-term challenges, both companies are positioned to deliver standout growth for years to come.
Their discounted valuations provide an attractive entry point. Investors should tune out the market’s noise and focus on the impressive growth trajectories for Block and SolarEdge. Buying shares now, before the next bull run gets underway, could generate life-changing returns over the long term.
FAQ
Q: Why do analysts see so much upside potential for Block and SolarEdge stocks?
A: Wall Street is optimistic because both companies operate in large addressable markets with strong secular tailwinds. Their competitive positions and expansion strategies provide runway for 20%+ revenue growth for years, even decades to come. But near-term issues have dragged valuations lower, setting up substantial upside as their growth stories play out.
Q: What are the key risks when investing in high-growth stocks like Block and SolarEdge?
A: Investing in growth stocks carries risks like unprofitability, intense competition, tall valuations, macroeconomic susceptibility, regulatory threats, and execution challenges as companies scale. However, solid management and durable competitive advantages can help firms successfully navigate these risks.
Q: Is now a good time to buy these stocks?
A: Recent pullbacks have made valuations quite attractive relative to Block and SolarEdge’s growth potential. Investing now, before the next bull market takes hold, could enable investors to secure shares at a discount. However, investing in individual stocks inherently carries risks. Assess your own investing time horizon and risk tolerance before making purchase decisions.
