Enphase Energy Has A Sunny Future With Some Clouds In The Short Term

Published on

The Company Has A Large Addressable Market, But It Has To Deliver

Energy independence is no longer a throwaway campaign slogan. For millions of consumers, particularly many who are living in Europe, it’s becoming an essential reality. This is one reason that solar stocks are making a comeback. And Enphase Energy (NASDAQ:ENPH) is one of the more intriguing ways to play the solar sector.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2022 hedge fund letters, conferences and more

However, after Enphase reported a beat on the top and bottom lines, ENPH stock is struggling to move higher. Some of this can be explained by the overall malaise that is falling over the market. In fact, after a post-earnings pop after reporting earnings on Tuesday morning, the stock lost nearly 10% by the end of the week.

This is highlighting the overall narrative for Enphase Energy. Over the long run, the outlook is bullish, particularly if the company is successful at launching its presence in Europe But in the short-term, there may be some headwinds that keep the stock range bound.

Creating True Energy Independence

Here’s a quick primer to make the benefits of Enphase’s products obvious. The limitations to a traditional solar panel installation occur when the sun isn’t shining. This is the exact situation that Enphase’s products and services address. A core product for the company is its IQ8 microinverter

The microinverters serve two key objectives. Specifically, the microinverters convert direct current (DC) power from solar panels to alternating current (AC) power. This addresses a significant pain point for solar panel installations. This is what allows the efficient use of solar power or cloudy days or during the evening hours. The microinverters also remove the risk of a single-point failure.

However, Enphase has more to offer than the microinverters. Rather, the company offers consumers a complete energy system with batteries and software solutions that “bank” the energy from solar panels to ensure the company’s consumers have adequate power no matter what the outside weather conditions dictate.

Doubling Down on European Expansion

Nowhere is the demand for energy independence greater than in Europe. As the sanctions on Russian have made clear, many European nations rely on Russia for natural gas. That’s a challenging proposition in peace time. Now faced with economic sanctions, Russia is demanding payment for natural gas in rubles. You can see why many European consumers want to be their own source of power.

On the company’s most recent earnings call, Enphase chief executive officer Badri Kothandaraman defined a target for the company’s European growth. Specifically, Enphase is looking for 40% sequential growth in Europe.

What to Do With ENPH Stock?

ENPH stock climbed 70% from the onset of the Russian war on Ukraine until April 4, 2022. And at that point the stock was within sight of the consensus price target set by analysts. But in the last month, the stock has fallen 25% as institutional investors attempt to reprice stocks in expectation of more aggressive monetary tightening by the Federal Reserve.

According to the analysts tracked by MarketBeat, the consensus price target for ENPH stock is $240.42, which gives the stock an upside of nearly 50% (48%) from its price as of this writing. And since Enphase reported earnings on April 27, several analysts have raised their price targets.

However, with the short-term outlook for equities looking bearish it may not be the time to open a new long position. But a look at the options chain for ENPH stock indicates that investors who are comfortable with options trading may be rewarded.

Should you invest $1,000 in Enphase Energy right now?

Before you consider Enphase Energy, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Enphase Energy wasn't on the list.

While Enphase Energy currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

Article by Chris Markoch, MarketBeat