Uncertainties in the U.S. solar market have affected the performance of Enphase Energy (NASDAQ:ENPH) in recent months. But as seen in its latest earnings report, there’s something helping to more than make up for these challenges. As a result, ENPH stock is starting to move higher.
What am I talking about? Booming demand for its solar-based home energy solutions products in Europe. This factor played a major role in its beating of revenue and earnings estimates during the March quarter. Even if one of the drivers proves temporary, other drivers could help its success in the European market carry on.
That’s not all. The challenges in the U.S. market may be starting to ease. Shares are reasonably priced relative to their growth potential. To top things off, the company is consistently profitable. Put simply, this may be a great choice for clean energy investors.
ENPH Stock at a Glance
Based in Fremont, California, Enphase is in the home solar energy business. It’s a leading provider of microinverters. These are used to convert the direct current (DC) generated by solar panels into usable electricity. The company also produces backup energy storage systems, which enable users to save solar energy for later use.
Growing adoption of solar energy has resulted in incredible growth. During this timeframe, ENPH stock has also delivered a knockout performance, up over 14,000%. More recently though, challenges in the U.S. solar market have affected the performance of shares. What are these challenges?
Supply chain bottlenecks, for one. Also, an investigation into alleged tariff dodging. This has impacted the importation of solar panels. As these issues persist, it’s having a hard time growing sales in the United States. Fortunately, the aforementioned booming demand over in Europe is helping to more than make up for the difference.
At least, that was the takeaway from Enphase’s latest earnings report. For the quarter, the company reported $441 million in revenue. This was above estimates calling for $432 million in revenue. Earnings-per-share (EPS) of 79 cents came in above estimated EPS of 67 cents.
Continued European Growth and a U.S. Comeback
There’s another promising takeaway from the ENPH stock earnings report: solid prospects in the quarters ahead. Management expects European revenue to rise more than 40% on a sequential (month-over-month) basis this quarter.
Yes, you may be thinking that this big jump in demand may be temporary. Russia’s invasion of Ukraine has played a big role in sparking it. The invasion, and the resultant sanctions, have caused high electricity prices in Europe. This has, in turn, compelled many to adopt alternatives like solar. Yet it’s not just this event that’s helping to spark demand.
Europeans have been quicker to adopt solar for a larger share of their energy needs. In the years ahead, more Europeans are going to use solar to power and heat their homes, as well as charge up their electric vehicles (EVs). Along with faster adoption, Enphase is also expanding its presence in Europe. Already in markets like Germany and France, it’s now moving into other large E.U. economies like Italy and Spain.
Along with this, the company’s U.S. challenges may soon clear up. Supply chain issues have started to ease. There’s also now a bipartisan effort led by U.S. Senators to bring the tariff investigation issue to a close.
Assuming European growth continues, and the issues hurting its performance in the U.S. market improve, Enphase should have little issue delivering similarly strong results in the quarters ahead. Already profitable, the coming years stand to bring steady earnings growth.
In the past month, sell-side analysts have upped their EPS forecasts for 2022 ($3.45) and 2023 ($4.30). Trading for 50.6x this year’s estimates, and 40.6x next year’s estimates, the stock is reasonably priced relative to growth. Granted, current market conditions are challenging for growth stocks.
Even so, the fact that this is a growing and profitable company may help reduce downside risk. That’s in contrast to growing but unprofitable companies, valued mostly on future results. Those types of plays could continue to move lower, as rising interest rates affect their valuations.
I recommended taking partial profits in Enphase Energy to my Accelerated Profits subscribers on May 4 in the wake of its impressive post-earnings rally. If you’re looking for “future of energy” plays, ENPH stock is definitely one to consider.
ENPH stock earns a “B” rating in my Portfolio Grader.
— Louis Navellier and the InvestorPlace Research StaffRetire Early With $3 Wonder Stock? [sponsor]
Ever dream of retiring 5... 10... 15 years early with help from one blockbuster stock? No guarantees, but tech futurist Luke Lango believes a tiny, under-the-radar $3 gem holds the key to disrupting the entire electric vehicle industry. You don't want to miss this... Get full details here.
Source: Investor Place