Enphase Stock: Trailblazing Into The Future
Summary
- Enphase Energy, Inc. sells micro-inverters that allow energy conversion at individual solar panels while providing energy monitoring and controls.
- In November 2021, ENPH acquired ClipperCreek, which sells electric vehicle charging solutions in residential and commercial settings.
- In October 2021, ENPH launched the new IQ8™ solar micro-inverters, which can provide backup power usage without a battery during power outages.
- We discuss whether investors should add ENPH stock now.
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Investment Thesis
Enphase Energy, Inc. (NASDAQ:ENPH) develops micro-inverters for individual solar panel installations in the US and globally. The micro-inverters allow energy conversion at individual solar panels while providing energy monitoring and controls for individual panels. The system maximizes the total output of the solar panel system while also enabling expandable solar panel configurations. The company sells to homeowners, commercial users, and manufacturers through D2C, B2B, and distributors.
ENPH is currently the market leader in solar inverter technology, with a 48% market share in the US in 2020. The company reported stellar FQ3'21 revenue while guiding for FQ4'21 revenue that exceeds consensus estimates. In October 2021, the company launched the IQ8™ solar micro-inverters, its newest smart system. In November 2021, ENPH acquired ClipperCreek, which provides the company entrance into the electric vehicle charging market.
We discuss whether investors should add ENPH stock now.
Enphase's Foray Into Electric Vehicle Charging
In November 2021, ENPH acquired ClipperCreek. As a result, ENPH is expected to expand into electric vehicle (EV) charging solutions for residential and commercial consumers within the US. Furthermore, integrating the technologies will "enable the bi-directional charging capability for vehicle-to-home and vehicle-to-grid applications" from electric vehicles such as Tesla (TSLA). One such study is ongoing by Australia's University of Queensland. As a result, ENPH will be able to tap on the growing EV segment in the US, which is expected to grow at a CAGR of 40% in the next five years. Badri Kothandaraman, President and CEO of Enphase Energy, said:
Jason (Founder of ClipperCreek) has managed to build one of the leading EV charging companies, while remaining profitable and demonstrating gross margins in-line with Enphase. We look forward to building upon the current product base while adding smart features such as cloud connectivity, integration into the EnsembleOS™ platform, and bi-directional charging in the future. Managing EV charging is an integral part of our strategy. ( Seeking Alpha )
Breakthrough IQ8™ Solar Micro-inverters
In October 2021, ENPH launched the new IQ8™ solar micro-inverters in the US. Unlike its competitors, the smart micro-inverters can form a microgrid during a power outage and provide backup power usage without a battery. It is made possible due to the "custom Application Specific Integrated Circuit (ASIC) chips with a software-defined microinverter." In addition, for extended outages or those with higher electrical loads, ENPH has other options such as "Home Essentials Backup" with a small ENPH IQ battery and "Full Energy Independence" with a large ENPH IQ battery. Kothandaraman added:
Many homeowners often assume their solar systems will function if the sun is shining, even during a power outage. This has unfortunately not been true until today. Now, with IQ8, homeowners can realize the true promise of solar — to make and use their own power. IQ8 solar micro-inverters can provide Sunlight Backup during an outage, even without a battery. ( Seeking Alpha )
Due to the US's high frequency of natural disasters, there is potential for high uptakes on the new IQ8 solar micro-inverters. As of October 2021, there have been 18 natural disasters, causing total damage of $100B. In addition, the Texas Freeze In February 2021 and Hurricane Ida in August 2021 left many residents with no power for as many as three days and up to two weeks, respectively. Furthermore, many hospitals were vulnerable as they depended on generators before the restoration of electricity. As a result, we expect the IQ8 solar micro-inverters to generate massive sales for ENPH, given the considerable potential.
Enphase Reported Stellar FQ3'21 Earnings
ENPH Revenue. Data source: S&P Capital IQ
ENPH recorded robust revenue growth in the past five years at a CAGR of 30.78%. In FQ3'21, ENPH reported $351.52M in revenue, representing an increase of 11.2% QoQ and 196% YoY. In addition, ENPH sold 2.5M micro-inverters in the same quarter, a rise of 10% QoQ and 80% YoY. Furthermore, the company guided FQ4'21 revenue to between $390M-$410M, higher than consensus estimates of $374.5M. In addition, ENPH has also been consistently outperforming consensus estimates over time.
In FQ3'21, sales in the US accounted for the majority of ENPH's revenue at 76.1%. It represented an increase of 177% from FQ3'19 levels. Internationally, ENPH sells most of its products in Europe, and its microinverter has been installed in more than 130 countries. Enphase spent an average of 5% to 10% of its annual revenue on R&D, which amounted to $29.4M in FQ3'21. It represents an increase of 29.5% QoQ and 196% YoY. As a result, we can expect ENPH to maintain its technological expertise in the micro-inverter market.
ENPH Revenue By Segment. Data source: S&P Capital IQ
The Future Of Solar Power Looks Bright
ENPH Projected Revenue. Data source: S&P Capital IQ
Enphase's revenue is expected to grow steadily in the next four years, at a CAGR of 28.45%. In addition, the company is also estimated to grow its EBITDA faster at a CAGR of 32.81%. The company also expects to increase its serviceable available market from $4.1B in 2020 to $14.1B in 2023, at a CAGR rate of 20%.
ENPH Serviceable Available Market. Data source: ENPH
Assuming that the Build Back Better bill passes the Senate, we can further expect $320B in tax credits for companies that install solar panels. The bill will reduce the overall cost of solar panel installation by 30% and electric vehicles by $12.5K. With high federal government support for clean energy, credible secular tailwinds are underpinning ENPH's future success. Furthermore, the global micro-inverter market is estimated to increase to $6.5B by 2025, at a CAGR of 20.8% over the next four years.
The Solar Energy Industries Association (SEIA) also reported that the solar market experienced massive growth at a CAGR of 42% in the past decade. The installation cost has also been reduced by 50%, from $40K to $20K for an average-sized residential system. The energy generated also achieved parity with other forms of generations at a range of $16/MWh - $35/MWh.
Solar Power Deployment. Data source: Solar Energy Industries Association
So, Is ENPH Stock A Buy?
ENPH EV/Fwd Revenue. Data source: S&P Capital IQ
ENPH is currently trading at an EV/NTM revenue of 19.12x. It's significantly higher than its peers' comps set mean of 4.1x. It's also higher compared to its 3Y revenue multiple mean of 9.31x. Nevertheless, ENPH is expected to grow rapidly, as we can observe from its EV/Fwd Revenue trend. Regardless, there's a considerable amount of growth premium embedded in ENPH stock.
With a growing focus on clean energy and electric vehicles from the Infrastructure Bill, we can expect the whole sector to blossom in the next five years. As one of the market leaders in microinverters, ENPH will likely continue its leadership.
Furthermore, the company reported minimal impact from the global supply chain issues due to ENPH's geographically diversified manufacturing facilities. As such, we expect ENPH to register steady growth moving ahead.
Nevertheless, we remain cautious over its current valuation. There's little doubt that ENPH stock is a solid stock. But, we encourage investors to wait for a deeper retracement before adding more exposure.
Therefore, we rate ENPH stock at Neutral for now.
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This article was written by
JR Research is a seasoned investor with a background in economics. He focuses on identifying growth companies, market trends and growth opportunities. His approach combines price action with fundamentals.
He runs the investing group Ultimate Growth Investing, which specializes in identifying high-potential opportunities across various sectors. The group is designed for aggressive investors seeking to capitalize on high-growth opportunities, and investors looking for growth opportunities at a reasonable price. Learn more.Analyst’s Disclosure: I/we have a beneficial long position in the shares of TSLA either through stock ownership, options, or other derivatives. 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 (41)
Thanks for the update. 200 vs 50 day moving average? Which one is more indicate of bouncing off or trending down?
