While the broader Nasdaq-100 Index ($IUXX) has surged nearly 34% in 2023, shares of Enphase Energy (ENPH) are down over 56% year-to-date - making it the worst-performing stock on the index. Valued at a market cap of $15.8 billion, Enphase Energy is also trading 66% below its all-time highs.
Despite the significant pullback, ENPH has returned a staggering 1,500% since its initial public offering (IPO) in March 2012.
Let’s see if investors should buy shares of Enphase Energy right now.
What Does Enphase Energy Do?
Enphase Energy is an energy technology company and is the leading supplier of microinverter-based solar-plus-storage systems globally. It delivers smart, easy-to-use solutions that integrate solar generation, storage, and energy management on a single platform. Enphase offers a semiconductor-base microinverter system that converts energy at the solar module level, bringing a new-age approach to solar energy generation.
Global energy markets are in the midst of a massive transition. The rising costs of utility providers, climate change, and geopolitical tensions are driving the need for energy security, which can be achieved via clean energy solutions. Moreover, the Inflation Reduction Act (IRA) and the energy crisis in Europe allowed Enphase to more than double sales in 2022.
Enphase also acquired GreenCom Networks last year, which is a home energy management software. The acquisition should allow Enphase to network its solar and storage systems to third-party electric vehicle (EV) chargers and heat pumps, while providing homeowners with a single app to control and monitor these devices.
Enphase has increased sales from $624.3 million in 2019 to $2.33 billion in 2022. Its operating income has grown from $105 million to $450 million in this period.
Is Enphase Energy a Good Stock to Buy Right Now?
Despite its enviable growth in recent years, Enphase Energy faces several challenges. The shift towards clean energy solutions has attracted multiple players, including heavyweights such as Tesla (TSLA) and SolarEdge (SEDG).
Enphase might expand its customer base by reducing product prices, but this will also drive profit margins and earnings lower. Another near-term headwind for Enphase is a rising interest rate environment, which has driven the cost of mortgages and the cost of debt higher in recent months.
Lower home sales will result in lower product sales for the company. Additionally, installing solar energy is still expensive, which means homebuyers in the U.S. finance these installations by taking a loan.
Despite these factors, Enphase reported revenue of $711 million in Q2, an increase of 34% year over year. While sales in the U.S. fell for the second consecutive quarter, international sales almost tripled to $294 million, up from $108 million in the year-ago period. In the last six months, Enphase also reported a GAAP (generally accepted accounting principles) net income of $304 million, rising 136% year over year.
Its expanding profit margins in the last few years allowed Enphase to end Q2 with $1.8 billion in cash and $1.32 billion in debt. Its free cash flows have risen from $11.9 million in 2018 to almost $700 million in 2022, providing it with enough room to reinvest in growth projects, lower balance sheet debt, and target accretive acquisitions.
What Is the Target Price for ENPH?
Analysts tracking Enphase expect sales to rise 13.7% to $2.64 billion in 2023 and by 15.3% to $3.03 billion in 2024. Comparatively, adjusted earnings are forecast to improve from $4.62 per share in 2022 to $6.44 per share in 2024. So, ENPH stock is priced at 5.3x 2024 sales and 18x forward earnings, which is reasonable for a growth stock.
Out of the 27 analysts covering Enphase, 18 recommend “strong buy,” one recommends “moderate buy,” seven recommend “hold,” and one recommends “moderate sell.” The average target price for ENPH is $195.56, which is 69% above current trading prices.
