Enphase Energy, one of the world’s most advanced solar panel producers, had a fantastic run in 2019. But how hot does the stock look in a time of emergency?
If your home’s energy system has ever benefited from a microinverter, then you probably have Enphase Energy (NASDAQ: ENPH) to thank. The company, founded back in 2006 by Raghu Belur and Martin Fornage, is credited as a pioneer in the development of the technology for commercial use. To simplify — perhaps to oversimplify — a microinverter is a device that allows users to harvest power from individual solar panels rather than an entire system of them, resulting in less fragility and more efficiency.
With a great recent stock market performance and a series of bestselling green-energy products at its core, it’s no wonder Enphase is the toast of both Wall Street and Silicon Valley. But amid current market woes, it’s time to ask if the company’s future prospects are as exciting as its recent past.
The Bull Case For Enphase
Rare is a company that genuinely stands at the forefront of technological advancement. Enphase does just that. Along with strong sales, the company’s innovative nature helps to explain its extraordinary performance last year, which saw a series of estimate-beating quarterly reports and a huge 452.4% jump in shares.
Aside from the stock’s impressive recent gains, Enphase has a number of virtues to its name that indicate long-term success. Here are a few.
- Innovative products. In its most recent quarter, Enphase reported cash and equivalents of $269 million, set against a debt of $105.5 million. The company’s solid balance sheet allows it to invest in growing and improving its solar products, which it has been doing at a rapid pace. Enphase is investing in research and development for practically all areas of solar energy, including off-grid and weak-grid solutions. The company’s next-gen IQ8 microinverter, which has been playfully described as “grid-agnostic”, could be a game-changer in developing regions such as Africa and India.
- Accelerating market. For many years, solar energy looked as unprofitable as it did noble, and remained something of a niche investment, with only Elon Musk’s SolarCity enjoying household-name status. While the industry is still dwarfed by the likes of Big Oil, there are encouraging signs — particularly the sharp decline in solar energy storage costs — that Big Solar could soon be a reality. Enphase, undoubtedly a major player in the space, is very well-positioned should solar energy go mainstream.
- Strong leadership. Back in 2016, Enphase enjoyed a period of rapid growth, yet the company suffered from a lack of financial focus. Although MyWallSt generally advocates founder-leaders, the subsequent appointment of Badri Kothandaraman to the role of CEO has inarguably been a boon for Enphase. Under Kothandaraman, the company’s new focus on profitability and streamlined production have driven its exceptional revenue gains in the years since. An entrepreneur himself, Kothandaraman’s commitment to toeing the line between vision and discipline has led to results that speak for themselves.
The Bear Case For Enphase
- Uncertainty surrounding Covid-19. The optimistic case for Enphase is best made in what we might call normal times. These, of course, are not normal times. Now that a significant percentage of the world’s population is on lockdown and the global economy faces its biggest challenge in a generation, the company’s growth projections — including its estimation of a serviceable addressable market of $12.5 billion by 2022 — will be in need of a sober update. Should a long-lasting slowdown occur, solar energy does not look like a particularly at-risk industry, but the situation is shifting too quickly to make any meaningful predictions at present.
- Formidable competition. Though Enphase is currently a world leader in all things solar, the company will need to keep investing heavily in innovation should it wish to keep that position in what remains a highly dynamic industry. Companies which offer lower-cost alternatives to Enphase’s core products — chief among them, SolarEdge Technologies (NASDAQ: SEDG) — are not going anywhere, and the space is still open to new threats from big green energy players like Tesla (NASDAQ: TSLA), which has owned SolarCity since 2016.
So, Should I Buy Enphase Stock?
Due to recent market volatility, Enphase has dropped sharply from last year’s dizzying highs. In such a climate, there’s no telling if that decline will continue into the near future. Ultimately, though, an investment in Enphase is an investment in what appears to be one of the brightest lights in solar energy. For anyone who thinks solar has a big future in the years and decades ahead, Enphase looks like a very good pick indeed.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.