Enphase Vs Tesla Stock: Which is Best?

Enphase Vs Tesla Stock: The transition to renewable energy may not be happening swiftly enough for climate change advocates, but it is happening. Industry-leading organizations are developing innovative methods of harnessing fossil fuel alternatives, and there are constant advances in solar and wind technology. 

In April 2019, renewable energy overtook coal for the first time in history, providing 23 percent of US power generation versus coal’s 20 percent market share.

Batteries are now capable of storing more energy for longer periods, and the cost of green energy continued to drop – onshore wind by 10 percent and solar by 18 percent. Lower prices make these options appealing for large-scale projects, which has substantially increased demand. 

In short, alternative power sources have entered the mainstream, rapidly gaining popularity for their convenience and affordability. Though the transition to renewables hasn’t reached a tipping point quite yet, it’s coming – and when it does, the companies who pioneered this technology stand to see massive financial gains. 

Of course, investors want to be a part of the potential future profits generated by the renewable energy market, but it’s not always clear which company is best-positioned for success.

Two major players, Enphase and Tesla, have gotten a lot of attention among analysts and financial experts in recent months, so the question is, Enphase or Tesla stock – which is best? 

Enphase Is Building A Dominant Market Share

Enphase Energy is focused on the solar power business – specifically, the manufacture of microinverters.

These are the components that convert energy from solar panels into the AC energy that powers homes and businesses.

There is some competition in this space, but Enphase is holding its own in terms of market share. In 2018, it bought one of its primary competitors, SunPower, which was an important step in establishing market dominance. 

Enphase is making waves on Wall Street as it continues its growth trajectory despite the challenges of 2020.

Investors drove share prices up by 27 percent in July, then 28 percent in August after Enphase reported strong second quarter results. Consider this: Enphase’s 52-week low is $17.18 but within months of that low it had traded 4x higher.

In the second quarter announcement, Enphase reported $125.5 million in revenue and $0.17 adjusted diluted earnings per share. While this isn’t particularly impressive when considered year-over-year, it is exceptional given the economic downturn caused by the novel coronavirus.

The figure that has increased year-over-year is free cash flow. For the second quarter of 2020, that came in at $21 million – a significant improvement over second quarter 2019’s $12.3 million. 

These results prompted analysts to upgrade ratings and price targets, with some adjusting projections from an estimated $48 per share to $100 per share.

In other words, the experts are optimistic that Enphase has the right strategy in place to continue its growth and the skill to execute successfully. In other words, Enphase is a smart buy.

It’s Not All Rosy For Enphase Share Price

As with any investment, buying Enphase stock does carry its share of risk. A not insignificant one is the fact that share prices shot up dramatically over the past few months, which may mean a correction is coming.

If so, it is unlikely to be a long-term loss, but some investors prefer to wait and see. After all, if share prices do come down a bit, it could be an opportunity to buy at a bargain. 

Other risks of investing in renewable energy include the possibility of weakening demand. This is of particular concern when oil prices go down, as alternative energy is most popular when it is the less expensive option.

Again, though, it is unlikely that volatility in oil prices will have more than a temporary impact on Enphase shares. Those looking to invest for the long-term don’t need to give much weight to this risk. 

Finally, any number of regulatory and geo-political factors can impact solar power manufacturing and supply companies. For example, if the trade war with China escalates, it could lead to higher prices for some components used in the manufacturing process. 

Tesla Enjoys The Musk Halo Effect

Elon Musk’s Tesla is best known for its alternative-energy vehicles, but that’s not all the company does.

It is deep into a wide variety of cutting edge projects, including solar roofing, solar panels, and energy storage. Outside of Tesla, Musk is pursuing other extraordinary ventures. For example, his company SpaceX has partnered with NASA to put humans back in space. 

Every time Musk achieves success in one of his projects, it raises the profile of Tesla. Perhaps that’s why Tesla shares gained 1,000 percent from August 2019 to August 2020.

Now, it’s true that there was a sell-off in early September that knocked the 12-month gains to 690 percent – but investors who purchased their shares in the first half of 2019 or earlier are still quite satisfied. 

What does that mean for investors who are considering the addition of Tesla shares to their portfolios today? 

Tesla Competitors Are Building Up Steam

There are a number of risks facing Tesla investors, but the biggest one is this: until recently, Tesla hasn’t had any real competitors, but that is about to change.

Nikola recently announced a partnership with General Motors to produce vehicles that will compete head-to-head with Tesla’s product lineup. Whether that will prove to be Tesla’s undoing is anyone’s guess for now. 

It has had a remarkable 12-months during which investors saw share values increase in dramatic fashion. After a recent Tesla stock split, the per-share price is now more affordable, too.

Still, though, buying Tesla seems like quite a gamble. The company is certainly growing, and it is likely to lead in all sorts of innovations, but that is already baked into current share prices. 

Is there room for additional growth in Tesla stock value? Perhaps – if the company is even more successful than anyone dreamed in the coming years. However, at this point, if Tesla simply meets the high expectations already set, there may not be much more room for shares to grow in value. 

Tesla Vs Enphase Stock: The Bottom Line

The bottom line is that both Tesla and Enphase are well-positioned to be leaders among the companies of the future, and both have seen impressive increases in their share prices over the last year. However, for investors considering a new purchase of these stocks, Enphase has an edge.

Enphase shares haven’t had the dizzying incline that Tesla saw from August 2020 to present. Therefore, it appears likely that Enphase shares are priced commensurate with their value, giving them more room to grow as the company continues to expand. That makes Enphase the better buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.