Stock Analysis & Ideas

Enphase Energy: A Ray of Light in the Solar Sector

Story Highlights

As nations turn to alternative fuel sources due to geopolitical events, solar-industry investments offer potentially long-lasting returns. Enphase Energy might not look like the cheapest entry point into this high-conviction market, but the company’s geographic expansion makes the stock attractive.

California-headquartered Enphase Energy (ENPH) manufactures and sells home solar energy solutions, including microinverters. I am bullish on the stock.

The alternative energy movement was already underway before Russia invaded Ukraine – there’s no denying that. Yet, after Russia threatened to cut off oil and natural gas supplies to multiple countries – and people’s gas and electricity bills skyrocketed – the global shift to renewable energy suddenly accelerated.

As the invasion of Ukraine drags on month after month, it’s hard to predict when the crisis will end and how high fossil-fuel prices will rise. Amid this unsettling backdrop, solar energy offers a solution to high energy costs and dependence on Russia for fuel supplies. Moreover, President Joe Biden has made it crystal clear, through his words and actions, that he will support America’s burgeoning solar-power industry.

However, many people’s homes aren’t currently equipped to benefit from solar power. This is a problem, but also an opportunity for Enphase Energy to step up to the plate and deliver powerful, efficient solar-power systems, not only in the U.S. but internationally. There’s also an opportunity for enterprising investors here who don’t mind taking on some risk in return for possibly outstanding rewards in the long run.

On TipRanks, ENPH scores a 9 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.

Value is in the Eye of the Beholder

So, let’s talk about value. Is it defined by a single metric, such as the P/E ratio? If that’s true, the Enphase Energy stock won’t appeal to some value investors, as the company’s trailing 12-month P/E ratio is currently 166.47.

Yet, I would encourage you to think of value differently than just a single number. For one thing, Enphase Energy stock is down significantly from its 52-week high of $282.46. Hence, the stock could be considered a good value from that standpoint.

Beyond that, you’re invited to look deeper than the P/E ratio and the stock price. The company, like the solar industry itself, is growing. For instance, Enphase Energy posted first-quarter 2022 earnings of 77 cents per share, beating both the Wall Street estimate of 68 cents per share and Enphase’s year-earlier quarterly earnings of 56 cents per share.

Besides, the company’s Q1-2022 revenue of $441.29 million slightly outpaced the consensus analyst estimate, while also demonstrating improvement over the year-earlier quarter’s $301.75 million. Already, we’re starting to see a solid value in Enphase Energy stock, despite the apparently high P/E ratio.

Even beyond that, investors should understand how dominant Enphase Energy is in the microinverter market. As the company boasts, “if you see a home with solar panels on it, there’s a good chance it’s an Enphase home.” Amazingly, the company has installed over 45 million microinverters on more than 2 million homes in over 135 countries.

Expanding at Home and Abroad

Now, you might be wondering what a microinverter is and why they’re used in many solar systems. As Enphase Energy explains, microinverters are plug-and-play devices that convert direct current (DC) generated by a solar module to alternating current (AC). Microinverters tend to have a simple design, an enhanced safety profile, and the ability to harvest optimum power.

Enphase Energy has been aggressive in extending its share of the microinverter market. Frankly, you just never know where the company will plant its flag next. For example, just in the month of June so far, Enphase has expanded its IQ8 model microinverter deployments in Southern California, New York, and Texas.

The deployment in Texas will be particularly crucial as the state is dealing with brutal summer heat waves. Moreover, as Juan Meza, engineering manager at ATMA Energy, observed, “Looming heat wave-induced power outages are motivating more Texans to seek out backup power solutions.”

Yet, the scope of Enphase Energy’s vision for solar-enabled solutions isn’t limited to the U.S. In late May, the company reported increasing deployments of Enphase Energy Systems, powered by IQ Microinverters and IQ Batteries, in Germany. This is occurring during a time when Germany may have to face the prospect of Russia cutting off supplies of fossil fuels.

It’s a challenging and worrisome situation, but companies in Germany seem to trust Enphase Energy to provide timely solutions. An example would be Frank Luckenbach, CEO and owner of Solarzentrum Mittelhessen, who acknowledged that “German homeowners are subject to some of the highest electricity prices in Europe.” Consequently, his company is “excited to provide our customers with Enphase’s industry-leading residential energy solution so they can take more control over their home’s energy.”

Wall Street’s Take

According to TipRanks’ analyst rating consensus, ENPH is a Moderate Buy, based on 10 Buy and four Hold ratings. The average Enphase Energy price target is $225.86, implying 16.85% upside potential.

The Takeaway

You might call Enphase Energy the microinverter king, but there’s more to the company than that. Truly, Enphase is offering much-needed solutions as nations seek greater energy security and independence, along with sustainability.

Through this lens, prospective investors might view Enphase Energy stock as a terrific value despite the elevated P/E ratio. Eventually, Enphase’s shareholders might realize macro-sized returns from the burgeoning microinverter market.


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