➡️ This is a step-by-step stock review to determine if Enphase Energy (ENPH) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Enphase develops, manufactures, and sells solar micro-inverters, energy generation monitoring software, and battery energy storage products, primarily for residential customers. They were founded in 2006, located in 21 countries, and headquartered in Fremont, CA.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Enphase Company History
- Step 3: Enphase Business Model
- Step 4: Enphase News
- Step 5: Enphase Competition
- Step 6: Enphase 4M’s
- Step 7: Is Enphase stock a good buy?
Step 1: Tykr Rating
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: On Sale
- Score: 78/100
- MOS: 90%
- Share Price: $292
- Sticker Price: $1,469
Step 2: Enphase Company History
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition
- In 2001, Founder Martin Fornage saw that most solar systems use a central inverter, where the panels are connected together in a series, creating a string, which delivers direct current (DC) power into the inverter for conversion into grid-compatible alternating current (AC). The major downfall to this approach is that the entire string’s output is limited by the output of the lowest-performing panel. Solar microinverters address this problem by converting the DC into AC in a small inverter placed behind each individual solar panel. Fornage noticed this problem on his ranch and brought the idea to his former Cerent Corporation colleague, Raghu Belur to form PVI Solutions in 2006.
- In 2007, they officially changed the company name to Enphase Energy.
- In 2008, they released its first microinverter, the M175.
- In 2009, they released the M190, which sold 400,000 units that year.
- In 2010, they reached 13% market share.
- In 2012, they went public.
- In 2014, they announced it would enter the home energy storage market.
- In 2016, they launched residential products in Australia.
- In 2020, they launched residential products in the US.
- As of 2020, they have 48% of the residential market share in the US but 1.7% of the residential market around the globe.
- In 2021, Enphase acquired ClipperCreek, a manufacturer of electric vehicle charging stations.
Step 3: Enphase Business Model
How does Enphase make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Enphase makes money by manufacturing and selling the following products to businesses and consumers.
Before companies like Enphase came around, solar power was a “use it or lose it” model. In other words, the energy directly captured on the solar panels had to be used immediately or it would be lost. Now with microinverters, the power may be converted to AC and stored in batteries.
Microinverters – Solar panels absorb sunshine in the form of direct current (DC) power. Below each panel is a microinverter that converts that DC power to alternating current (AC), the form of power a home uses.
AC modules – AC modules are solar panels. While Enphase doesn’t manufacture solar panels, they work with module partners including Panasonic, Emmvee, and REC to produce the AC Modules, which combine their microinverter with a solar module into one integrated unit. Your solar installer can help you pick out the right solar panel for your system.
Batteries – Enphase sells batteries that store the power generated from the solar panels.
Envoy – Envoy is the brain of the Enphase Microinverter System. Envoy monitors your energy consumption and helps the microinverter run more efficiently.
MyEnlighten – MyEnlighten is an iOS and Android app that allows you to monitor your energy production and system health right from a mobile device.
Enphase sells some of its products through the website but the majority of the revenue is generated through channel partner distributors which include solar power installation companies and electric companies.
Solar Power Benefits to Consumers
- Consumers who invest in solar panels can see their home value increase by as much as $10,000.
- The average payback time on solar is less than 25 years. If you’re wise with energy consumption in your home, meaning you don’t keep lights on in rooms you’re not in or leave TVs on when you’re not watching, you can cut that time down to 7 – 10 years.
Step 4: Enphase News
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from zacks.com lists Enphase as a strong buy because of the strong EPS growth and free cash flow growth. The historical EPS has grown over 200% year-over-year the last 4 years and the free cash flow has grown over 1,000% year-over-year the last 4 years.
This article from cnbc.com lists the top eight best-performing stocks from the S&P 500 in 2022. Seven of which are oil & gas companies but in the top eight is also Enphase which is up 47% this year.
This article from globenewswire.com state that the solar power market is expected to reach $368B by 2030. That means between 2021 and 2030, the CAGR (Compounded annual growth rate) is expected tobe 7.2%. A major factor for the growth includes the cost to generate renewable energy. In other words, its becoming less expensive to manufacture equipment that can capture energy.
This article from schaeffersresearch.com talks about a $369B bill to battle climate change which will help focus on various clean energy incentives including solar as well as EVs. The initiative could put the United States on track to slash its greenhouse gas emissions by 40 percent, below 2005 levels, by 2030.
This article from enphase.com talks about the federal solar investment tax credit in the US which offers a 26% tax credit. In other words, if you purchase an Enphase system for $10,000, you would qualify for a $2,600 tax credit on your next IRS bill. Solar-related tax credits have helped this industry grow by 10,000% since 2006 with an estimated 50% annual growth over the last 10 years.
This video compares Enphase, Tesla, and Generac batteries. All batteries can power your home essentials such as heating, water heater, sump pump, refrigeration, freezer, kitchen appliances, TVs, etc. Enphase batteries are the smallest while Generac batteries are the largest. It’s advised the batteries are stored indoors such as in a garage. The average investment for all batteries is about $15,000. All companies offer a 10-year warranty but Enphase allows customers to buy an additional 5-year warranty.
This article from hbr.com talks about the dark side of the solar panel industry. Because solar technology is becoming more efficient and lower cost to manufacture, businesses and consumers are upgrading to newer technology which causes a problem. There are only two options for the old solar panels. Option A is to recycle the panels which costs about $20 – $30 per panel whereas Option B is to send the panels to a landfill which costs about $1 – $2 per panel. The reason is, the panels contain silver, glass, lead, and cadmium. Due to the lead and cadmium, solar panels are considered hazardous waste. In summary, it is very expensive to recycle and much easier to toss in a landfill. This tells us the solar power recycling industry is in need of improvements and it will be interesting to see how entrepreneurs solve this problem over the coming decade.
Step 5: Enphase Competition
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Enphase (ENPH)
- Summary: On Sale
- Score: 78/100
- MOS: 90%
- Share Price: $292
- Sticker Price: $1,469
Tesla (TSLA)
- Summary: On Sale
- Score: 94/100
- MOS: 68%
- Share Price: $901
- Sticker Price: $2,061
Generac (GNRC)
- Summary: On Sale
- Score: 67/100
- MOS: 90%
- Share Price: $266
- Sticker Price: $1,340
SunPower (SPWR)
- Summary: On Sale
- Score: 50/100
- MOS: 89%
- Share Price: $21
- Sticker Price: $98
First Solar (FSLR)
- Summary: Watch
- Score: 44/100
- MOS: 90%
- Share Price: $99
- Sticker Price: $501
Sunrun (RUN)
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $31
- Sticker Price: $31
Step 6: Enphase 4Ms
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
✅ MOS: The score of 78/100 is good and the MOS of 90% shows a lot of upside potential. When you take a closer look at the financials, you can see the net income and EPS have remained flat for the last 3 years. This is why the score is 78 and not 90 or higher. Overall, this is not an issue but it is worth paying attention to.
✅ Meaning: Oil and gas stocks generated great returns in 2022 because of rising commodity prices but those gains will most likely not sustain when commodity prices drop. However, renewable energy is the future and stocks like Enphase will most likely see steady returns over the next decade. Energy generated from both the sun and wind are low-hanging fruit within the renewable energy industry and companies like Enphase, Tesla, and Generac will most likely see good returns.
✅ Moat: There are quite a few strong competitors in this space but based on the global demands for renewable energy, all companies can thrive, especially Enphase, Tesla, and Generac.
✅ Management: Badri Kothandaraman joined Enphase in 2017 as COO and was appointed the role of CEO in the same year. Kothandaraman has 21 years of experience in the semiconductor industry. Prior to Enphase, he worked at Cypress Semiconductor for 21 years in roles including design engineering up to EVP of Data Communications. He is also the founder of a USB-C tech startup that was in business for 6 months. Unfortunately, I don’t see a lot of experience within the renewable energy industry. Aside from his experience, the Enphase Glassdoor rating is 3.8 which is okay. Ideally, we like to see companies with a Glassdoor rating above 4.0. By comparison, Atlassian is 4.7, Adobe is 4.4, Palantir is 4.4, AMD is 4.2, Tesla is 3.7, and Generac is 3.0. Overall, leadership at Enphase could use a little improvement but it should not sway you away from showing interest in this stock.
Step 7: Is Enphase stock a good buy?
The MOS is really good but there is room for improvement. We want to see the net income and EPS increase over the coming year. The meaning is probably the strongest of the 4Ms because of the demand of renewable energy. Enphase happens to be a company that was started at just the right time. The moat is worth paying attention to but as mentioned previously, all companies at the moment can thrive especially Tesla and Generac. It will be important to pay attention to how many competitors hit the market over the next 5 to 10 years. If the market becomes saturated, this stock may be a shorter-term hold. The management is good but I wouldn’t consider it great. I would really like to see more renewable energy experience with Badri Kothandaraman. However, I can’t hold that against him because the share price is at an all-time high in a down market.
If you’re looking for a renewable energy stock to add to your portfolio, this stock is worth a look.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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