Energy technology company Enphase Energy (NASDAQ: ENPH) designs and develops energy management technology for the solar industry. Microinverters remain its legacy product. The company has shipped more than 32 million microinverters to date. Moreover, an expanding global footprint is another strong point of Enphase, whose residential and commercial systems have been deployed across 130 countries.
Enphase’s multi-bagging story is exceptional. Starting as a penny stock at the beginning of 2017, and rising to $121.75 as of yesterday’s close, the ENPH stock has appreciated a massive 8071.14% over the past 5 years.
Some Growth Drivers
The solar industry is expanding due to the strong demand for clean energy. This growth in the broader solar industry has set the momentum for the solar microinverter market as well. Research firm UnivDatos inferred that the global solar micro inverter market is expected to reach about $5.6 billion by 2025, witnessing a CAGR of 28.4% over the 2019-2025 period, which is quite impressive.
Given that Enphase is one of the top solar stocks in the U.S. and already enjoys a leadership position as a microinverter manufacturer, the company is bound to benefit from the strong prospects of the industry.
Financial Pros and Cons
Enphase’s balance sheet, however, is leveraged, which means that its long-term debt is higher than its cash and cash equivalents, at least as of September 30, 2021. The long-term debt was $940.2 million whereas the cash and cash equivalents were $885.5 million, as recorded at the end of 3Q21.
Nonetheless, the current debt of $86 million (as of September 30) is significantly lower than the cash reserve. Moreover, at the end of 3Q21, the company’s current ratio was 4.49, which indicates that Enphase has sufficient cash in hand to pay off its short-term debt obligations. Thus, although at a tight liquidity position, Enphase has a strong near-term solvency position, which means that its short-term financial obligations can be smoothly met.
The prevalent worldwide shortage of semiconductors has impacted the solar market as well. In the last reported quarter, the company suffered component constraints of application-specific integrated circuits (ASIC), which is a key component in microinverters. The persistence of this constraint might obstruct the optimal supply of its microinverters, which can be detrimental to the top-line.
Experts Opine
Recently, Truist analyst Tristan Richardson reiterated a Buy rating on Enphase, but trimmed the price target to $200 from $290. A disappointing alternative energy sector performance and “seemingly muted” demand for residential systems prompted the price target trim.
The rest of Wall Street is optimistic about Enphase, with a Strong Buy consensus rating based on 15 Buys and 1 Hold. The Enphase stock prediction points toward an average price target of $256.
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