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Enphase (ENPH) Plunges 20.4% YTD: Should You Buy the Dip?
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Enphase Energy Inc.’s (ENPH - Free Report) shares lost 20.4% in the year-to-date period, underperforming the broader Zacks Oil-Energy sector as well as the S&P 500.
The company has been persistently suffering in recent times due to the dismal demand environment it is facing in the United States and Europe. This is further evident from ENPH’s poor second-quarter 2024 results despite it being a prominent U.S. solar microinverter manufacturer.
Enphase Lags Sector & S&P500
Image Source: Zacks Investment Research
With the improving solar installation trend worldwide, some investors might see this as an opportunity to buy ENPH in the dip, taking the stock’s long-term growth potential and solid product pipeline into account. However, in order to assert if it would be profitable to add this to your portfolio right now or wait a little longer, let’s delve deeper. This should help us understand what led to the stock’s decline and if there’s any risk to investing in the same.
What Caused Enphase to Lose So Much?
Since the beginning of the second quarter of 2023 (in the United States) and the second half of 2023 (in Europe), Enphase’s products have been experiencing a broad-based slowdown in their demand. In the United States, this slowdown was primarily the result of higher interest rates, high channel inventory and the transition from Net Energy Metering 2.0 (NEM 2.0) to Net Energy Metering 3.0 (NEM 3.0) in California, which increased the payback period for Enphase Energy’s customers in California. In Europe, this slowdown was primarily due to soft customer demand (as utility rates dropped) and the implementation of some policy changes.
Consequently, ENPH has been witnessing a stark deterioration in the shipment of its products. Evidently, in the second quarter, its revenues plunged 57.3% year over year, primarily due to the declined shipment of its microinverters. In fact, the company has been delivering such dismal operating performance for the past couple of quarters, which, in turn, must have led to the notable loss in its year-to-date share price.
Will Enphase Recover Anytime Soon?
Although some improvements are being witnessed in the demand scenario in the United States and Europe lately, the overall impact of the aforementioned factors, particularly high interest rates that are still prevailing in the U.S. economy, is not going to disappear any time soon. So, the near-term expectation for Enphase’s operating results remains dismal for the time being.
The Zacks Consensus Estimate for third-quarter revenues and earnings reflects a deterioration of 22.6% and 28.8%, respectively, from the prior-year quarter’s level. The top and bottom-line estimates for 2024 also mirror a disappointing picture.
ENPH’s Sales & Earnings Estimates
Image Source: Zacks Investment Research
Trading at a Premium
In terms of valuation, ENPH’s forward 12-month price-to-earnings (P/E) is 27.10X, a premium to the industry’s average of 20.16X. This suggests that investors will be paying a higher price than the company's expected earnings growth. The company is also trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.06X), Canadian Solar (CSIQ - Free Report) (5.83X) and Emeren (SOL - Free Report) (3.53).
Image Source: Zacks Investment Research
Long-Run Prospects Seem Bright
Despite all the near-term adversities, Enphase offers solid long-term growth opportunities, backed by its solid product pipeline, valuable presence in the battery storage market and strong financial position.
In the second quarter of 2024, the company started shipping its IQ8P microinverter, which is its highest-power microinverter at 480 watts AC for both residential and commercial applications, in France, Spain and Finland. In July 2024, Enphase started shipping its IQ8 Microinverters in Luxembourg. Later in 2024, the company plans to launch its IQ8X microinverters in Australia. Such new product introductions should boost Enphase’s future revenue growth.
As of Jun 30, 2024, more than 7,400 installers worldwide were certified to install its IQ Batteries. During the second quarter, Enphase shipped 120.2 MWh of IQ batteries, reflecting an annual improvement of 46.1%. This surely reflects the solid demand that Enphase’s batteries enjoy in the solar market.
ENPH plans to pilot its fourth-generation battery in the United States in late 2024 and aims to begin production in early 2025. This should bolster its revenues in the long run.
With the company’s long-term and current debts being lower than the cash balance (as of Jun 30, 2024), it would be safe to conclude that Enphase holds a solid solvency position. Moreover, its current ratio at the end of the second quarter was 4.23. The ratio, being greater than one, indicates ENPH’s ability to meet its future liabilities without difficulties.
Final Thoughts
To summarize, despite the solid growth potential offered by Enphase over the long run, it is not advisable to add this stock to one’s portfolio right now, considering its premium valuation and dismal near-term estimates.
As per Wood Mackenzie’s March 2024 report, despite the strong growth witnessed in global solar over the past few years, average annual growth is projected to be flat over the next 10 years. Therefore, a prudent investor should refrain from buying ENPH stock now and wait for a more appropriate entry point. The company currently has a Zacks Rank #4 (Sell), which further supports our thesis.
Image: Bigstock
Enphase (ENPH) Plunges 20.4% YTD: Should You Buy the Dip?
Enphase Energy Inc.’s (ENPH - Free Report) shares lost 20.4% in the year-to-date period, underperforming the broader Zacks Oil-Energy sector as well as the S&P 500.
The company has been persistently suffering in recent times due to the dismal demand environment it is facing in the United States and Europe. This is further evident from ENPH’s poor second-quarter 2024 results despite it being a prominent U.S. solar microinverter manufacturer.
Enphase Lags Sector & S&P500
With the improving solar installation trend worldwide, some investors might see this as an opportunity to buy ENPH in the dip, taking the stock’s long-term growth potential and solid product pipeline into account. However, in order to assert if it would be profitable to add this to your portfolio right now or wait a little longer, let’s delve deeper. This should help us understand what led to the stock’s decline and if there’s any risk to investing in the same.
What Caused Enphase to Lose So Much?
Since the beginning of the second quarter of 2023 (in the United States) and the second half of 2023 (in Europe), Enphase’s products have been experiencing a broad-based slowdown in their demand. In the United States, this slowdown was primarily the result of higher interest rates, high channel inventory and the transition from Net Energy Metering 2.0 (NEM 2.0) to Net Energy Metering 3.0 (NEM 3.0) in California, which increased the payback period for Enphase Energy’s customers in California. In Europe, this slowdown was primarily due to soft customer demand (as utility rates dropped) and the implementation of some policy changes.
Consequently, ENPH has been witnessing a stark deterioration in the shipment of its products. Evidently, in the second quarter, its revenues plunged 57.3% year over year, primarily due to the declined shipment of its microinverters. In fact, the company has been delivering such dismal operating performance for the past couple of quarters, which, in turn, must have led to the notable loss in its year-to-date share price.
Will Enphase Recover Anytime Soon?
Although some improvements are being witnessed in the demand scenario in the United States and Europe lately, the overall impact of the aforementioned factors, particularly high interest rates that are still prevailing in the U.S. economy, is not going to disappear any time soon. So, the near-term expectation for Enphase’s operating results remains dismal for the time being.
The Zacks Consensus Estimate for third-quarter revenues and earnings reflects a deterioration of 22.6% and 28.8%, respectively, from the prior-year quarter’s level. The top and bottom-line estimates for 2024 also mirror a disappointing picture.
ENPH’s Sales & Earnings Estimates
Trading at a Premium
In terms of valuation, ENPH’s forward 12-month price-to-earnings (P/E) is 27.10X, a premium to the industry’s average of 20.16X. This suggests that investors will be paying a higher price than the company's expected earnings growth. The company is also trading at a significant premium to other industry players like JinkoSolar (JKS - Free Report) (3.06X), Canadian Solar (CSIQ - Free Report) (5.83X) and Emeren (SOL - Free Report) (3.53).
Long-Run Prospects Seem Bright
Despite all the near-term adversities, Enphase offers solid long-term growth opportunities, backed by its solid product pipeline, valuable presence in the battery storage market and strong financial position.
In the second quarter of 2024, the company started shipping its IQ8P microinverter, which is its highest-power microinverter at 480 watts AC for both residential and commercial applications, in France, Spain and Finland. In July 2024, Enphase started shipping its IQ8 Microinverters in Luxembourg. Later in 2024, the company plans to launch its IQ8X microinverters in Australia. Such new product introductions should boost Enphase’s future revenue growth.
As of Jun 30, 2024, more than 7,400 installers worldwide were certified to install its IQ Batteries. During the second quarter, Enphase shipped 120.2 MWh of IQ batteries, reflecting an annual improvement of 46.1%. This surely reflects the solid demand that Enphase’s batteries enjoy in the solar market.
ENPH plans to pilot its fourth-generation battery in the United States in late 2024 and aims to begin production in early 2025. This should bolster its revenues in the long run.
With the company’s long-term and current debts being lower than the cash balance (as of Jun 30, 2024), it would be safe to conclude that Enphase holds a solid solvency position. Moreover, its current ratio at the end of the second quarter was 4.23. The ratio, being greater than one, indicates ENPH’s ability to meet its future liabilities without difficulties.
Final Thoughts
To summarize, despite the solid growth potential offered by Enphase over the long run, it is not advisable to add this stock to one’s portfolio right now, considering its premium valuation and dismal near-term estimates.
As per Wood Mackenzie’s March 2024 report, despite the strong growth witnessed in global solar over the past few years, average annual growth is projected to be flat over the next 10 years. Therefore, a prudent investor should refrain from buying ENPH stock now and wait for a more appropriate entry point. The company currently has a Zacks Rank #4 (Sell), which further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.