A gain of 134.56% in 2019 for shares of SolarEdge Technologies, Inc. (SEDG) has the markings of big money being behind the move higher. One thing is clear – the shares show a high amount of unusual trading activity. It's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. I actually wrote about SolarEdge six weeks ago, highlighting the buy activity. You can see that article here. Since then, the stock has gained 39%.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. The main criteria we look for when betting on upside in a stock include a history of strong fundamentals, solid technicals, and unusual trading in the shares. Simply put, we’re looking for big buying.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of the stock lies in its trading activity. It's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, SolarEdge stock has clearly been in demand.
For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you what our unusual trading activity signal looks like, have a look at all of the unusual institutional (UI) signals SolarEdge stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. This is exactly the kind of setup we look for at our research firm. We want to bet on the likeliest candidates heading higher. This move is notable because stocks move based on supply and demand. This is a chart showing big buying demand:
So far in 2019, SolarEdge has logged nine unusually high-volume days, indicative of buying in the shares (see chart above). But what gets our attention now is that SolarEdge is still gaining quietly but in an unusual way, which suggests that buying in the stock is increasing.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also don't want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a strong candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas in which SolarEdge stock has grabbed our attention year to date (YTD):
- YTD outperformance vs. market: +116.79% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. technology ETF: +107.07% vs. Technology Select Sector SPDR Fund (XLK)
- Recent bullish unusual trading signals
Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2017 when SolarEdge made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. What jumps out is that the big buy signals could keep going for a while:
On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, SolarEdge's latest earnings report showed year-over-year (YoY) growth:
- Q2 2019 YoY revenue growth rate: +43%
- Q2 2019 YoY non-GAAP net diluted EPS growth rate: +14.6%
SolarEdge shares are breaking out to highs after a blowout earnings report. We like the long-term story of the stock. The narrative for SolarEdge is one of massive growth and strong guidance. We are always on the lookout for companies showing usual buy activity in the. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.
The Bottom Line
SolarEdge looks like an outlier based on many factors. The stock could be in position for further upside. Given the lift in price, recent big buying signals, and solid earnings and guidance, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds no position in SolarEdge shares at the time of publication.