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Enphase: A Run For The Sun

Jun. 05, 2020 1:53 AM ETEnphase Energy, Inc. (ENPH)63 Comments
Douglas Adams profile picture
Douglas Adams


  • Enphase's fall into Covid-19 induced bear territory provides a stellar opportunity to buy into a premier player in the renewable energy space.
  • Enphase put up extraordinary YOY 1st quarter numbers often dreamed about by investors but rarely achieved in real time.
  • Beyond Covid-19 remains the proving ground for the company and the planets of growth appear well-aligned.

Renewable electricity costs have fallen dramatically over the past decade as technology, economies of scale and competition have all contributed handsomely in driving the cost of utility-grade photovoltaics (PV) prices down by 82% over the past decade. The per kilowatt hour costs have fallen over the period to a global average of $0.068 through the end of 2019. Utility-grade solar prices are expected to reach $0.039/kWh by 2021, falling well below the costs of comparable coal-fired plants. Falling renewable energy prices allowed the breach of an important threshold through the end of 2019: Renewable energy consumption in the US surpassed that of coal for the first time in over 130 years. Replacing a 500 GW coal-fired utility with a solar and wind equivalency would produce cost savings in the neighborhood of $23 billion annually while reducing emissions by about 1.8 gigatons of CO2, or about 5% of global CO2 emissions for 2019. The multiplier impact of the investment would come in at about $940 billion, or about 1% of global GDP.

Last month, the California Energy Commission began requiring most new residential and commercial buildings be outfitted with solar panels for structures built after January 1, 2020. California’s new law is the first of its kind in the nation and a clear boon for the solar industry. Critics cite the outsized mean price of California homes with a nation-leading range from $1.2 million in San Francisco, $630K in Los Angeles and $572K in San Diego, the state’s three top markets. The new regulation is expected to add about $10K to the cost of new construction, offset by an estimated $19,000 in projected energy and maintenance savings over a 30-year period.

Clearly hanging ten on this wave of growth, California-based Enphase Energy (NASDAQ:ENPH) (green-red line) is trading at a significant price

This article was written by

Douglas Adams profile picture
Douglas Adams specializes in macro-economic research and turning theory into practical portfolio applications for clients over the past seventeen years. Mr. Adams recently formed Charybdis Investments International based in High Falls, New York where he is the managing director of a fee-only investment advisory practice with clients throughout the United States. As an author, Mr. Adams has commented widely on a diverse array of topics from Brexit to monetary policy to forex to labor productivity and wage growth. He holds an undergraduate degree from the University of California, a master’s degree from the University of Washington and an MBA in finance from Syracuse University.

Analyst’s Disclosure: I am/we are long ENPH, SEDG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (63)

slayer972 profile picture
This just goes to show how shallow our system can be, and how utterly unreasonable. This short report is such a sham that I don’t even want to begin to try to dispute it - I am disregarding. The product market fit that Enphase has is one thing, but the leadership team they’ve assembled with and around Badri is in another league when it comes to execution. Appealing product, compelling value, exceptional execution - that is a combination that will serve as catalyst for long term growth. Throw in inspiring integrity and this here is a seismic opportunity for investors to get in. I will admit I am curious to see how their current quarter performs - particularly in light of these extraordinary times that we’re in, and the enormous expectations on this stock, but going into the rest of the year and 2021, I predict this will be a 4x value - $200 by early 2021.
GreenGrowthGeek profile picture
Wow, totally shallow and weak short report today that has sent shares tumbling. I'm amazed at the market reaction and it shows exactly why these unethical short sellers do what they do. You have to hand it to the short seller who timed this flimsy gossip column like "report" perfectly after there was an insider sale and the stock had soared over the past two months. I'm sure that these unethical smart people loaded up on shares and waited for some type of "bad news" that would cast doubt on the company. They saw the insider sale (which is a nothing burger) and then publicly launched their so called "research." It's total BS and it's totally legal at this point in time. Why not get 15% in one day? I have to look myself in the mirror every day so I'd never do such a hit piece but it's understandable why this is done.
TJ Roberts profile picture
@GreenGrowthGeek Yep. It's a repeat by the same guy. The insider sales quip was weak. Rodgers only sold a portion of his shares but still has a huge stake. Quiroga sold out, so maybe he needed the money. Kortlang sold 180k and still has a boatload. The important thing is that in Q1, Enphase did 810MW, so what is that in marketshare percentage for resi solar?!?!?! For the longterm investor, IQ8PV, IQ8D and the AC box are the jewels on the horizon. The Encharge storage portfolio is fine, but the promise of IQ™8 is still unfolding, so give it time. If anything, today may have been a great fire sale. Furthermore, since Badri & Company have come onboard in 2017 timeframe, has Enphase ever missed their guidance? I am confident in Enphase long term, and I took advantage of the sale today; maybe I'll get another chance tomorrow, maybe not!
Enphase wants to sell more in Europe in 2020. They are building a large network in different countries. This fits perfectly with the timing because the EU plus many individual countries (such as France and Germany) are planning high subsidies for renewable energies, including solar energy.
I sold my ENPH at the beginning of the year at a 33% profit but boy was I pissed I didn't hold on. I'd have a new Porsche if I did. I recently got back in in the high 40s. It's a winner.
Only Tech profile picture
Why did ENPH drop today? No news anywhere.
Trigalnorte profile picture
Im wondering the same. Maybe some hungry short seller messing with this stock?
"SolarEdge took out a contract to purchase over 56,000 meters of land to build a factory to produce lithium-ion battery packs"

i know its a sterotype but looks like americans real don know how the metric system works :-P
narend profile picture
I see the insiders have sold a fair amount of shares recently being the company knew before hand I suspect was the reason for the stock buyback announcement as stated enph did not want to dilute the common share holder.
That being said my question is were these shares listed in the public float thus should increase earnings per share even in these troubled times?
Need some help from you financial guys to figure this out.
Yes the one large selling insider did give Enphase several million dollars years ago for some of his shares.
I suspect his tax bill will be more money than most of us dream about.
This is wonderful news for Mother Earth. Folks making money AND saving the planet.
I might unload my position in RICK and go with one of these firms.
The PE numbers for SEDG and GNRC are about double of what you state.
InvestRite#1 profile picture
Your article died flat when you said "Enphase’s 8th generation IQ microinverter and the company’s Encharge battery storage system will have a Chinese-manufactured lithium-iron phosphate battery". Why??? POTUS
aakenai profile picture
@InvestRite#1 I don't get the POTUS connection here, have I missed something? I'm not sure that is what the author was insinuating to be honest when talking about China, to me I read that he was merely presenting risk factors to the investment case. You might want to read this as it seems that the Encharge batteries are in fact from China:

"Enphase has battery supply deals with A123 Systems and another unnamed Chinese manufacturer for its 3.3-kilowatt-hour and 10-kilowatt-hour systems."

From, www.greentechmedia.com/... October 2019.

In their recent CC they did state that they are looking to expand battery supply outside of China, but for now it's probably 100% China, and most of their production is in China, although they are trying to reallocate a lot of that to Mexico.

Even if there are problems with US-China going forward, it seems Enphase are on the path to mitigating the effects of them. I suspect they couldn't care less about the political allegiances and just want to run their business in the most effective and profitable way.
TJ Roberts profile picture
A lot of good stuff in the article, good research.

[Enphase’s 8th generation IQ microinverter and the company’s Encharge battery storage system will have a Chinese-manufactured lithium-iron phosphate battery with a storage capacity of 1.7 kWh capacity.]

Actually, that 1.7kWh capacity will be for the AC Box now codenamed Ensemble-in-a-Box, the prepper's must-have item, and easily purchasable, I assume, from the Enphase Store et al. With (3) IQ™8's for the solar PV and the battery, it should have quite the performance running Ensemble in unison on all the Swift ASIC's.

The Encharge™ storage is still spec'ed at 3.4kWh (4 IQ8's) and 10.1kWh (12 IQ8's or 3 (3.4 units).
TJ Roberts what is the cost of encharge storage compared to competitors ie solaredge?
Great company, but it needs to take a breather... it'll drop back down below $30 before its next big run imo. Price/Sales Ratio is close to 10X. The entire market is crazy expensive right now. The greatest casino the world has ever seen!!!!!
Mark BM profile picture
yeah right.... $30.... Sure. Go short it and get burnt
Respect the Game profile picture
I hope so but doubt it

SinatraSavvy profile picture
Already sitting on a 250% gain in just under a year and a 200% gain with SEDG. I’ll take it!
A guy I lived next door to my first year in college 30 years ago, brilliant guy... wound up as a VP for Enphase. He was beyond an ordinary category of smart, was really into the intricate technical aspects of how semiconductors actually worked, things like that... I recall looking at a couple technical papers he wrote with awe. One of the brightest guys I've ever met, and crazy hard worker.

I googled him well over 5 years ago I think, and saw that he joined Enphase. Just because I recalled how bright he was, I bought a little stock well under $2 I think and sold when it doubled and forgot about it. Little did I know what I was sitting on, jeez!! I have not spoken to him since college, can't help but wonder if he made a major contribution to the success of the company. I would not doubt that the answer is yes.
Same here, bought at $1.50 and sold at $6.00. >>> insert sound effect of a Homer Simpson Doh! dopplegangering away here<<
I watched the Enphase setup today. It seems as though it might still want to fall some more. I'll pass this time around.
"Wary and mindful of the Covid-19 hit on its stock price, Enphase announced a stock repurchase program worth $200 million. While a questionable use of resources in the eyes of most economists, with $593.8 million in cash.."

This is evidence that the company does not have a better use for its funds.
Aren't there other companies it could 'scoop up'?
This is a question as I'm not familiar with the industry.😯
Douglas Adams profile picture
In my humble opinion, ENPH should be buying battery/storage capacity like SEDG is doing in South Korea. This would give them operational control over the manufacturing of a very critical component of their operation moving forward. This would be a much better growth prospect for future growth and long-term shareholder value than buying back shares. Not owning this piece of their ongoing production equation could turn into an Achilles heel over the longer term as renewable power generation is captured more and more by storage capabilities.
Disagree. Enphase tech can interface with any fuel cell. Best you follow up on my original critic, learn and understand the differential between NOVA SPWR RUN VSLR storage offering.
The differential will separate the promote from the value.
Essential you get up to speed.
The differential delivers windfall profits.
No need to involve huge capital outlays.
Ignore the SPWR module experience.
You give credit to SEDG with out a single quarter of storage profits to date.
Opinions are empty with out examining the data.
Big gaps in your knowledge.
funny money monkey profile picture
I'm happy to be long SolarEdge, Enphase, and Generac. I'll gladly add to each position on market weakness.
Buyandhold 2012 profile picture
"Last month, the California Energy Commission began requiring most new commercial and residential buildings be outfitted with solar panels for structures built after January 1, 2020."

The people on the California Energy Commission must not have very good vision.

Solar panels are extremely UGLY.
Paint it pink-- now not ugly-- Coal fired Utilities is Ugly! Wow you are a different person
Dead Man Joaquin profile picture
When you learn to comprehend instead of just observe, thinks that seemed ugly often don't appear the same way. May your insight evolve, may you live long and well.
Buyandhold 2012 profile picture
Dead Man,

I do comprehend.

I comprehend that solar panels are a hideous eyesore.
market overvalued. will wait for pullback
grok42 profile picture
Good article. One aspect that sticks out to me that would benefit from a lot more analysis is Enphase's poor track record in delivering on their new product projections. The battery and IQ8 etc were promoted by management but have had multiple delivery delays. Enphase has a great vision and innovative products. But a killer product roadmap is useless if management cannot actually deliver the products. It is starting to bother me that the CEO does not seem to have a good handle on where the new products are at in the development life cycle.

Don't want to sound too negative here. That is one negative in comparison to all the positive aspects you discuss in the article. But this does seem to be a material risk. A detailed examination of Enphases's new product development history seems to me to be key to the investment thesis. How credible is their product roadmap and forecasted launch dates?
wantedtoretireearly profile picture
It's a fair point and true. He even admitted as much in a recent conference call. Covid did set their plans back a bit as well. But they need to do better in this regard, I agree.
Douglas Adams profile picture
Thanks for the question, difficult as it is to answer satisfactorily.

I ran across the issues of the IQ8 program and had similar questions. The most recent delay was summed up tersely as engineers running into problems that caused delays in the launch. There was no clear followup to the question.

The difficulties with negotiating China-based supply chains in the heat of US-China trade tensions is a likely contributing factor in the launch delay. Covid-19 largely closed down Chinese productive capacity beginning in late January and ran through much of February. The Chinese New Year holiday also cut into production time.

I think a bigger issue here is speciality. Enphase's speciality is in the power management, communication and software pieces. They have operational control over these areas of the production equation. They do not manufacture panels or cell packs. Accordingly, they don't have operational control over either of these pieces of the puzzle. Both panels and the company's battery packs come from Chinese sources.

The lithium space continues to be problematic with chronic issues of oversupply and now the pullback of public policy incenting the purchase of EVs in China and the regulatory pullback in the US on CAFE requirements. Germany just increased its subsidy of EVs in yesterday's fiscal program.

All of these issues weigh likely have weighed on Enphase's IQ8 launch. The hope now is for the release to happen in the second half of the year here in the US. With the current path of Covid-19 in the US and the very positive surprise drop in the US unemployment rate, the second half of the year appears to more conducive to meet demand in the field.
grok42 profile picture
Hi @Douglas Adams,

Very much appreciate your thoughtful reply. Without a doubt the Chinese trade issues impacted Enphase. I believe that is what led them to build and expand the Mexico inverter factory, which was smart imho. I would think that had at least some impact on the progress of new products development.

The battery supply aspect, imho, will probably resolve as there is a lot of new companies and new capacity in that space. It is possible EV car sales acceleration overwhelms battery supply, but so far I doubt it.

The problem from my perspective is more focused on Enphase's ability to create a rapid and repeatable design/build/launch product cycle process. They have had success with past product cycles (IQ7, etc) but they appear to lack maturity in the repeatability of those processes. You may very well be right about the challenges of not controlling the panels or cell pack technologies. That did not occur to me.

That brings up an interesting question as to whether Enphase can rapidly accelerate product life cycles at their own pace, or whether they are gated by the rate of technology advancement from the panel and cell manufacturers. In the semiconductor space, one way companies win is by simply outrunning the competition. It is my sense Enphase is using that strategy versus SEDG. But if their product life cycle is gated by the ecosystem, that approach may be difficult to succeed at.

In regards to the COVID-19 (C19) impact, there is definitely going to be substantial hit in the current quarter, which the CEO discussed in the CC. It greatly surprised me that the stock rose from the mid $40ies to $70 subsequent to the earnings report given the C19 impact through the end of 2020. It strikes me there might be more going on than we can see. Perhaps a buyout offer is floating around? Or maybe it is just getting more obvious that solar deployment is going to accelerate strongly going forward. Both the economics and the politics are strong drivers of solar and battery technologies and markets.

High valuation, but maybe, as Buffet would put it, a "snowball" business and technology. Snowball is a reference to rolling a ball of snow down a hill and it gathers mass and momentum at an increasing rate. This requires a strong moat of some type. Understanding Enphase's moat is important.

I appreciate your serious reply to my comment. Personally I think that adds to the credibility of your article and thesis. Some SA authors just ignore credible comments that are contrary to their thesis, which makes it hard to decide what their true motivation is.

Best regards, grok42
3 beach dogs profile picture
Enjoying my entry point at around $24 last year. I feel horrible for selling some off at $40. Great company great product [powering my desktop and house as I write].
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