Despite global commitments to a net-zero carbon footprint by 2050, progress has been slow — especially in the U.S. The solar energy sector has been struggling, partially because of the U.S.-China conflict over solar panel tariffs, which is stifling investment in the sector.
Rising rates — which harm growth stocks — and a risk-off mood have not helped the situation. This had led most solar stocks lower in spite of rising energy demand. IBD's solar energy industry has been one of the worst performers, ranking 176th out of IBD's 197 industries.
However, this doesn't mean there aren't stocks in this sector that are positioned to outperform. The industry's top-ranked stock, Enphase, is surprisingly in the IBD 50 as strong results and shining growth is expected for the company.
Growth Shines For Top Solar Stock
Enphase's growth has been nothing less than impressive with a three-year EPS growth and sales rate of 107% and 57%, respectively. This hot growth is expected to continue. After reporting earnings of $2.41 last year, analysts expect EPS to increase to $3.49 this year while expanding further to $4.32 in 2023.
First-quarter results reported last month were in line with these lofty expectations. The company reported an EPS of 79 cents on record revenue of $441.3 million. High growth was seen in the shipments of Enphase's IQ batteries that store solar energy. This segment saw a 20% growth in shipments from only a quarter prior.
A lot of the growth in battery sales came from Enphase's entrance to the German market last June, which has been going remarkably well. Just today, the company said it plans to expand deployments further in Germany due to high demand.
After skyrocketing from under 1 a share in 2017 to over 200 at the start of 2021, Enphase has largely traded sideways since, which is impressive considering recent sector and market weakness. Shares have formed a double-bottom base and traded slightly above the 193 buy point during Tuesday trading.
Enphase certainly has ample long term growth potential. Nevertheless, due to lofty expectations, market volatility and an unclear policy picture around the solar sector, investors should use caution with this stock.
