Why Is Enphase Energy Stock Down?

Solar is nothing new—it was invented in 1881—but it didn’t become available to the average consumer until the 1980s. Given varying levels of efficiency and predatory sales tactics by certain solar companies over the years, favorable public sentiment has waxed and waned ever since.

But it’s become evident with B Corp designations and other green certifications that consumers are more ready than ever to embrace solar industry offerings. 

And worldwide energy consumption continues to rise in lockstep with a growing global population, solar stocks have grown in popularity. Among them is Enphase Energy, which has had a decidedly underwhelming year thus far, down 9%. The question is why is ENPH down and will it recover?

Gigawatts Galore Favor Enphase

Perhaps the most important thing for any company is to be in a market where the size is sufficiently large that even a small part of the pie will prove lucrative. That’s certainly the case in the solar industry.

The buzz around solar energy has been loud in the United States for a number of years. In Q1 2024, the industry was responsible for 6.8% of all U.S. power grid capacity and 75% of new capacity, an increase of 11.8 GWdc. Q1 2024 came in just behind Q4 2023’s highest ever GWdc capacity increase.

Domestic equipment manufacturing capacity rose to 26.6 GW in Q1, up from just 15.6 GW in Q4 2023. If the industry can continue ramping up module production in lock step with requirements, it has the potential to supply a remarkable 70% of U.S. energy demands.

ENPH Leads But For How Long?

If you see a home with solar panels installed, there is a decent chance Enphase Energy, Inc. (NASDAQ: ENPH) was the supplier. That’s because it remains the top supplier of solar and microinverter battery systems.

The company has shipped around 68 million microinverters and has around 3.5 million commercial and residential Enphase systems in more than 145 countries.

In spite of all the reasons to be bullish, Enphase Energy shares are down on the year, so what gives?

Why is Enphase Energy stock down? Enphase stock is down due to lower revenue guidance than expected, the departure of David Ranhoff, the Chief Commercial Officer, and a class action lawsuit alleging securities law violations.

Will Enphase Energy Stock Recover?

The Inflation Reduction Act in 2022 was a catalyst to encourage US businesses to bring manufacturing back onshore. One of the companies that took full advantage of the Act was Enphase Energy.

The solar giant brought its IQ®8^TM Commercial Microinverter production back to the states, benefiting the company with stronger, better controlled production.

Though Enphase brought the IQ®8^TM microinverter back to the United States, it sent the IQ®5P^TM battery to France. The battery complements the microinverter and offers consumers improved residential energy options. However, the French domicile is bittersweet because while it doesn’t directly benefit the U.S. jobs market.

Another Enphase Energy product was released in California, the NEM 3.0 product solution. The goal is to provide homeowners with a solid ROI because NEM 3.0 is a top-to-bottom system that uses IQ®8™ Microinverters and IQ® Batteries to provide installers with solar energy solutions that meet specific regional energy demands and are affordable for the people of the area.

It’s clear with these initiatives that Enphase is sensitive to the preferences of consumers in a shifting energy landscape, but is it enough to sway declining consumers sentiments?

Financials Concern Investors

Enphase Energy’s financials for Q1 FY2024 failed to impress investors. Q1 net revenues plunged by 63.7% to $263.34 million versus the year prior. Gross profits fell by 64.6% year-over-year to $115.51 million.

Enphase posted a $29.1 million loss in Q1 2024, a noteworthy drop from Q1 2023’s profit of $167.66 million.

The company reported a net loss of $16.1 million in Q1 that resulted in a $0.12 per share loss. Q1 2023, on the other hand, featured net income of $146.87 million, and shareholders received profits of $1.02 per share.

At the end of Q1 2024, the company had $253.65 million in cash and cash equivalents, which is lower than the $288.75 million Enphase held on December 31, 2023.

Plus, the company’s total current assets in Q1 fell to $2.30 billion compared to $2.44 billion at the end of Q4 2023.

The looming question is after such a large decline, can it bounce back?

Concerns Grow Over Enphase Metrics

Enphase is worrisome across the board on some key metrics. For one, the PE ratio now sits at 122x, a figure so high as to suggest profitability is minimal and with a $15 billion market capitalization and $122 million in profits that seems accurate.

It’s also trading at a lofty 11x sales and 18x book value which is a concern given that sales are likely to decline this year in analysts eyes. Indeed, that’s likely the primary reason why 18 analysts downgraded their assessments for earnings for the upcoming quarter.

It’s no surprise that with net income forecast to fall a valuation analysis looks more dreary than had initially been hoped. 

What Is The Outlook for Enphase Energy?

Enphase Energy is likely to face some difficulties in the coming months. For Q2 2024, it’s forecasted that the top line will fall by 56.3% year-over-year to $311.06 million, while earnings-per-share could plunge by 67.1%, down to a meager $0.48.

Enphase Energy has missed consensus revenue estimates in all of the past four quarters, an ominous sign for what’s to come.

Looking forward to Q3 2024, the company expects revenue to further fall by 24.5% year-over-year to $415.95 million and EPS to drop similarly by 14.7% to $0.87 from the same time last year.

The company’s market valuation numbers are also weak. Enphase Energy’s forward non-GAAP P/E is 34.09x, which is 40.9% higher than the industry average of 24.19x. The forward EV/Sales ratio is 8.80x, also well above the industry average.

Of the 30 analysts tracking Enphase Energy, 14 recommend a “wait and see” approach, suggesting now is not the optimal time to invest. It certainly seems with sales and profit declines looming that waiting for the company to demonstrate improved growth and a more financially stable future is the best bet.

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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.