Investors are often compared to lemmings. In tumultuous times they’ve been known to blindly follow others off a cliff. When an industry is undergoing tremendous secular change, investors often buy or sell all stocks in that group without regard to each one’s fundamentals or valuation.  

These wholesale purges or binges offer investors incredible opportunities. As a short seller I used to sift through levitating groups to identify the worst players whose stocks were being lifted to unsustainable levels. Long investments can likewise be found when a group is under heavy selling pressure.

The massive 26% one month drop in the biotech index earlier this year offered investors a window to buy hot biotech stocks at bargain prices. Although some in the group are likely to be hurt by the price control threats that initiated the drop, stocks like ACADIA Pharmaceuticals and Editas Medicine are up roughly 45% since the trough in February.

SolarEdge, one of my favorite stocks, is suffering today due to some lemming-like behavior by investors. It is being bludgeoned 16 % despite reporting earnings $.10 better than expected and providing guidance within the expected range.

The culprit is SolarCity, the solar operator that once was SolarEdge’s largest customer but has shrunk to less than 10% of revenue. Coincident with SolarEdge’s release, SolarCity reported a greater-than-expected loss and guidance that said there would be a decline in second quarter solar installations.

The solar industry, once the belle of the ball, has been sent to the dungeon by investors. Bad actors like SunEdison and SolarCity, which built their business models on precarious ground, have sullied investors’ hopes for growth. With both companies losing money, expansion could only be fueled by a continuous stream of new financing from outside investors. Growth ground to a halt when the money stopped flowing in.

The deceleration in solar installations by SunEdison and SolarCity is not indicative of an industry melt down. The problems of these two players is directly linked to the availability of external financing, not to an evaporation in solar installation demand.

Duke Energy, for example, plans to nearly double its production and purchase of renewable energy by 2020. U.S. utility Southern Corporation plans to invest $5 billion in renewable energy over the next five years and recent regulatory changes support continued residential growth.

Certainly when two large customers cut back purchases, suppliers feel some effect. But SolarEdge has continued to grow quickly despite these headwinds. Revenue grew 45% in the just reported third quarter and is expected to grow 32% in the fourth quarter. While these growth rates are lower than the 70% enjoyed in the first half of the year, this slowdown has been expected all along and modeled into estimates.

Management noted that SolarCity now accounts for less than 10% of its business and that its largest customer is now a solar distributor selling to many smaller customers. It has done a remarkable job of diversifying revenue to avoid a free fall in sales if anyone customer pulls back orders. It also reassured investors that is has zero exposure to SunEdison’s bankruptcy as all of its receivables are insured.

SolarEdge is down 30% since my recommendation and is the worst performer in our portfolio. This is incredibly disappointing given earnings growth have been spot on. SolarEdge has yet to have estimates reduced and has beaten estimates every quarter since the recommendation. It now trades at 8 times 2017 estimates which are expected to grow 37%.

One thing I know as an analyst is that a company that continually delivers solid earnings will eventually be rewarded with a higher stock price. Even if Wall Street assigns a low multiple of 20 on 2017 estimates, the stock would double from here.

Third quarter earnings grew 155% to $.51 from $.20 a year ago and are expected to grow 37% next fiscal year (ends June 2017). The company generated $9 million in free cash flow up from a use of $18 million last year. The balance sheet looks fabulous with receivable days and inventory days down and inventory days down. These metrics show that the company’s customers are paying on time and that it is selling as much product as expected.

I feel the pain of this treacherous drop but am astounded that the stock is being punished so severely based on these results. The stock action looks like a wholesale purge of all solar investments by a larger holder. This blind selling leaves a huge opportunity for investors to scoop up a strong grower trading at an irrationally low price.