Enphase Energy Inc. Analysis Report
Enphase Energy, Inc. engages in the design, development, manufacture and sale of micro inverter systems for the solar photovoltaic industry. ENPH rose 18% in the last year vs a 13% decline for the S&P 500. Of the 29 analysts covering the stock in June, 6 had it as a strong buy, 17 a buy and 7 as a hold. Leaving 0 underperform or sell grades. The average price target on the stock is $231 or about 20% above where it is trading now. It is in an industry that has and is expected to continue to grow and is a proven innovator. In spite of all this, it could be primed to move even more in the next year if they beat their Wall St. sales projections which this report makes a case for. Wall St. likes this stock as evidenced by a 75.89/100 rating for Institutional Accumulation on Fintel.
ENPH came up on Prospero.Ai’s stock filter as a stock with both high Upside Breakout (85/100) and low Downside Breakout (27/100). High Upside and low Downside Breakout tends to mean that not only are there positive momentum factors and analyst coverage but Wall St. is making many more positive bets in the long term options markets than negative. Also it has both high Profitability (62/100) and Growth (70/100) forecasts which can be a difficult combination to achieve. For more information on these signals you can see the glossary below.
Strengths:
1. Strong Cash Generation Even Before Greater Scale - the last two years FCF (free cash flow) , one of the most important metrics in stock valuation, has grown 50+% each year. Looking at WeBull’s peer comparison tool we see that they are 2/28 amongst their peer group in Net Margin at 11.74% which more than doubles their closest competitor Solaredge (SEDG). This shows a very healthy core business, especially relative to their competition. Fintel grades them at 89.00 Quality Score (1241 out of 14008) which measures cash generating efficiencies in companies. As this company is still growing fast, its future size could allow it to be more and more efficient as it scales.
2. Proven Innovator - Enphase was founded by pioneers in the industry according to Solar Panel Portel Microinverters – a history and explanation "In 2006, Enphase Co-founders Martin Fornage and Raghu Belur grew frustrated at the perceived futility in developing incremental improvements in string inverter systems. Martin and his team at Enphase Energy went back to basics, rebuilding the solar inverter from the ground up. Martin developed a completely new electronic topology for inverters that solved each of the key challenges of commercialisation: cost, reliability and efficiency. It was an intense interdisciplinary approach, combining technologies from the semiconductor, power electronics, telecommunications and software industries. In addition to producing a new inverter architecture, this approach resulted in new hardware designs, packaging systems and testing processes for inverters. His product, the Enphase® Microinverter, was the world’s first commercially available microinverter. Microinverters improve on issues of string inverters where one inefficient panel on a string can bring down the efficiency of every panel on that string. Yahoo Finance rates them as a 68 out of 100 on their innovation scale vs. a 52 for their sector. "
3. Growing Industry - According to Grand View Research the Global Solar Market will almost double by 2030 ($286B in 2030 from $158B in 2022) which is great news for ENPH as they operate in 130 countries according to their most recent 10-K while this predicted annual growth rate of 7.8% makes for a lot of potential revenue for ENPH the US market provides even greater growth prospects especially seeing as the last two years had bigger growth rates for solar than the previous two. See table below from Solar Power in the United States as a leader and innovator in this industry ENPH is primed to experience excellent growth in the years to follow. Not to mention, earlier systems that were not built with microinverters could be replaced with microinverters as this technology becomes cheaper and more efficient.
4. Wall St. and thus the market might be estimating low on ENPH growth potential - In 2019, 2020 and 2021 ENPH revenue year over year grew 97.47%, 24.04%, 78.46% respectively and Wall St. average forecast is 50.90% growth this year. Wall St. analysts average revenue growth rate prediction for 2023 is 31.7%. Considering this 4 year average growth rate of 62.71% and 2 year average growth rate of 64.68% half of that for 2023 seems highly conservative considering there is no slow down projecting in the industry and no stand out reasons for a noticeable lack of market share as according to ENPH had a 15.57% market share the US in Q3 2021 and according to Enphase Energy Inc improved its market share, to approximate 18.82% in Q122. Not to mention, with the booming international growth of the solar industry, lost market share in one market could be made up by refocusing sales and marketing activities in other ones. The current average price target of $231 would provide a ~20% return over the next year using the 31.7% sales growth rate in the consensus assumptions. If sales growth is more than that the return could very well eclipse 20% in one year.
Risks:
Insider Sentiment - Yahoo Finance rates them fairly negatively on Insider Sentiment and Fintel rates them 24.05/100 on Insider accumulation. This is not something you like to see in a stock. However there is some mitigation to this risk as the company shows repurchases of Common Stock in their 10-K "In April 2020, our board of directors authorized the repurchase of up to $200.0 million of our common stock, exclusive of brokerage commissions, under the 2020 Repurchase Program. During the second quarter of 2021, we repurchased and subsequently retired approximately 1.7 million shares of common stock from the open market at an average cost of $117.47 per share for a total of $200.0 million. In May 2021, our board of directors authorized the 2021 Repurchase Program, pursuant to which we may repurchase up to an aggregate of $500.0 million of our common stock. During the fourth quarter of 2021, we repurchased and subsequently retired approximately 1.5 million shares of common stock from the open market at an average cost of $196.98 per share for a total of $300.0 million. As of December 31, 2021, we have approximately $200.0 million remaining for repurchase of shares under the 2021 Repurchase Program. Purchases may be completed from time to time in the open market or through structured repurchase agreements with third parties. The program may be discontinued or amended at any time and expires on May 13, 2024." This is something to keep an eye on. Continued Insider sales could be a reason to stay out of the stock or re-evaluate your allocation however but this signal in isolation or any signal shouldn’t ever be the sole reason to make a decision on a stock.
Renewables Fail to Meet Growth Forecasts - There are considerable tax credits in the US and internationally for the Solar Industry, changes in this could affect ENPH’s ability to grow. Granted, the international presence does insulate them well from one country or the other changing their policies but especially if this happens in the US it could affect the stock price strongly in the short to medium term.
Business Concentration - From the 10-K “As of December 31, 2021 and 2020, amounts due from one customer represented approximately 38% and 36%, respectively, of the total accounts receivable balance. In 2021, one customer accounted for approximately 34% of total net revenues. In 2020, one customer accounted for approximately 29% of total net revenues. In 2019, two customers accounted for approximately 21% and 12% of total net revenues.” Business concentration of this extent could have a major impact on projections and stock price if either the health of this customer's business was affected or they decided to change vendors.
Prospero.Ai’s Historical Analysis
Prospero produces free stock predictions designed to help retail investors close the gap against Wall St. ENPH has attractive long term attributes with High Upside Breakout, Low Downside Breakout as well as better than average Growth and Profitability forecasts. Let’s look at how these metrics have led the stock historically before diving into the current numbers.
The AVG monthly Upside Breakout crossed 80 for the first time in June 2018 and the AVG monthly price at that time was $6.01, one year later it had increased 285% to $17.14. October 2019 was the first time the AVG Upside Breakout crossed 90 the average price then was $23.61, 1 year later was a 440% increase in price to $103.89. We do see a decline in Upside Breakout before a few drops in the stock but recently it has started to head up again which would be a good sign if these patterns held. Also to be noted is that the Downside Breakout overall continues to trend down and this general downward trend has meant positive things for the stock price. Lower Upside Breakout means less bets against this stock in the long term options markets relative to other companies. To view an interactive version of this graph click here.
Prospero’s Profitability predictions have increased at a fairly steady rate which also has coincided with a good long term run for the stock. From this historical pattern an ongoing rise in Profitability rating / forecast should mean good things for the stock as well and may be a great leading indicator.
Current Prospero.Ai Metrics
A quick run through of the remaining Prospero signals. Prospero recommends investing in stocks that have good long term profiles above all. But the short term signals can be very helpful in timing trades. Nothing is leaping out as good or bad in the short term but keep an eye on Net Social Sentiment and Net Options Sentiment if you are looking to time entry and watch out for a rise in Short Pressure to see if there is mounting downward pressure.
Glossary (alphabetical)
Favorable values for key drivers are 80+
Unfavorable values for key drivers are <20
Darkpool Rating
Description Dark Pools are over-the-counter markets which Institutional Investors use to add to their control of the markets. Trades made in the Dark Pool could be for different prices than the rest of the market and can delay the reporting of the trade for up to 24 hours.
Interpretation High values (80+) indicate that institutions are interested in masking what may be the natural moves of the stock in the open market. Low values indicate that you can be more confident the stock price you see is one that reflects the real market value of the stock.
Gain
Description: Gain is the likelihood that the price of a stock will increase in the next 1-2 years
Interpretation: High values (80+) indicate that the value of this stock is expected to increase. Low values (<20) do not mean a loss, rather it means that there is a lower chance of gain or a low gain amount. Volatile stocks have a higher probability of both gain and loss.
Upside Breakout
Description: Growth is an indication of how likely the models suggest that a company will get bigger in size and/or revenue over the next year to two years.
Interpretation: High values (80+) indicates that a company is likely to consistently grow and do so by a strong amount over the next year or two. Low values (<20) indicates that it is likely to stay the same or even lose market share or revenue
Downside Breakout
Description: Loss is the likelihood that the price of a stock will decrease in the next 1-2 years
Interpretation: High values (80+) indicates that the price of this stock could decrease. Unlike other Key Drivers, low values (<20) does not mean a gain, rather it means a lower chance of loss. Any losses could be a low amount. Volatile stocks (stocks that are prone to swings up and down) have a higher probability of both gain and loss.
Market Similarity
Description: indicates how closely the stock is expected to mirror the S&P 500 over the next 1-2 years
Interpretation: High values (80+) indicates the stock is moving identically with the S&P 500, both in direction and amount. Low values (<20) indicates that the stock is moving very differently from the S&P 500.
Net Institutional Flow
Description: the difference between the buying and selling details of large investors. Details include purchase/selling description and the total dollar amount. We track this information from SEC filings which are available to the public
Interpretation: A high rating means that more institutions are buying than selling
Net Options Sentiment
Description: Positive Options Sentiment minus the Negative Options Sentiment. Positive Options Sentiment indicates a higher quantity of call options. Negative Options Sentiment indicates a higher quantity of put options. A call option is the right to buy the stock at a predetermined price. Buying a call is a bet the stock will go up. A put option is the right to sell the stock at a predetermined price. Buying a put is a bet the stock will go down. The rest is largely constructed by subtracting the average price of call options above the current price and subtracting the average price of put options below the current price.This is also known as the “skew”
Interpretation: A high rating means the derivative markets are “bullish” (optimistic) about the stock going up. A lower rating means a “bearish” (pessimistic) market for the stock.
Net Social Sentiment
Description: posts and comments from social media sites like Twitter, Facebook, and Reddit. Posts and comments can show how investors, both everyday and professionals, view a company.
Interpretation: Posts and comments that speak favorably of the company (positive sentiment) are subtracted from those that speak unfavorably (Negative Sentiment) to get a final, Net sentiment score.
Profitability
Description: used to show which companies have a strong financial base that can lead to profits over the next 1-2 years
Interpretation: High values (80+) indicates that the company has strong financial footing and can be expected to consistently yield profits now and in the near future. Low values (<20) is likely running at a loss, and is expected to do so for the next year or two.
Risk/Reward Ratio: the prospective reward an investor can earn for every dollar they risk on an investment
S&P 500: The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices
Short Pressure Rating
Description: This is derived from market activity. It represents how likely a stock is to be the target of a short squeeze. In a short squeeze, shorters, or people who take the short position in a stock, attempt to buy back all of the shares that they shorted all at once, which drives up the demand for the stock. The end result is a rapid increase in the stock's price. Game Stock and Volkswagen are good examples of this kind of market activity.
Interpretation: If a company has a high rating for short pressure AND is listed as a favorable bet in our long term predictions, then investing in that stock could have a high risk/reward ratio
Shorters: people who take the short position in a stock market. These people are betting that stocks will go down in value.
Some employees of Prospero.Ai are or plan to be owners of ENPH securities. The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movement in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to in this document and should understand that statements regarding future prospects may not be realized. Opinion, Projections and estimates are subject to change without notice.
Prospero.Ai, LLC is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. Prospero.Ai, LLC accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any thereof or due to any contents or associated services.