Renewable power is displacing older technologies in the electricity market, and it’s a trend that has a long way to go. Because Enphase Energy (NASDAQ:ENPH) supplies key technology to the solar panel industry, it’s no doubt poised for a bright future. But a great business isn’t always a great stock. Here’s what you need to know to decide if Enphase Energy is a buy today.
A key supplier to a growing market
Enphase isn’t exactly a front-line name in the solar industry. The microinverters it makes are just one, albeit extremely vital, part of the final product. However, as one of the largest suppliers of microinverters in the world, it plays a big role in the solar panel space. There’s huge growth ahead for the industry as a whole. The U.S. Energy Information Administration (EIA), for example, projects that solar’s share of the U.S. renewable power space will expand from 13% in 2018 to nearly 50% by 2050, surpassing all other renewable energy sources as renewable power’s share of the overall grid expands from 18% to 31%. These are just the projections for the U.S. grid, and this trend is a worldwide phenomenon.
Image source: Getty Images.
Early in its life, Enphase grew quickly but lacked financial and operational discipline. It hit a wall in 2016 and had to step back to focus on more than just the technology. That included bringing in a new CEO, as well as becoming more disciplined on the sales and production sides of the business. With a new emphasis on profitability, the company turned in a strong 2018. Revenue advanced 10%, and adjusted earnings went from a loss of $0.25 a share in 2017 to a profit of $0.10 a share in 2018 (driven largely by a strong fourth quarter). That upturn continued into the first quarter of 2019: A revenue advance of 8.5% year over year, combined with improved margins, led to a 100% increase in adjusted earnings.
With huge growth opportunities ahead for solar power and a business that appears to have found its footing operationally, there’s a lot to like about Enphase today.
The fly in the ointment
The problem is that investors are well aware of the positives taking shape today. The stock has risen roughly 350% so far in 2019. That’s an incredible advance