Shares of the clean-energy company Enphase Energy (NYSE: ENPH) fell by 9.3% on October 5 to $261.5. No company-specific news can be attributed to its decline, and the fall can be a case of short-term profit booking.
Despite the pullback, Enphase Energy has absolutely crushed the broader markets. It has gained a staggering 17,000% in the last five years, valuing the stock at a market cap of $34.3 billion. At current prices, the stock is trading 18.4% below all-time highs.
Enphase designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry in the United States and other international markets. It offers a semiconductor-based microinverter that converts energy at the individual solar module level and combines it with its proprietary networking and software technologies to provide energy monitoring and control services.
Let’s see if the recent pullback offers a buying opportunity for investors of Enphase stock.
Is ENPH stock overvalued?
Enphase energy has increased its sales from $316.1 million in 2018 to $1.38 billion in 2021. In the last 12 months, the company has reported revenue of $1.73 billion, and its forecast to end 2022 with sales of $2.24 billion, an increase of 62% year over year.
Further, analysts also expect the top line to surge by another 33.4% to $2.99 billion in 2023. Comparatively, its adjusted earnings are forecast to more than double from $2.41 per share in 2021 to $4.99 per share in 2023.
We can see that ENPH stock is valued at 11.5x 2023 sales and 52.2x forward earnings, which is quite steep.
But analysts tracking ENPH stock expect it to gain by another 15% in the next 12 months.
Is Enphase stock a buy or a sell?
The first nine months of 2022 have been decent for solar stocks trading in the U.S. compared to the meltdown across several other sectors. Further, the growing adoption of solar power as a clean energy source and the Inflation Reduction Act should act as tailwinds for Enphase Energy and its peers.
As seen above, unlike other solar energy stocks, Enphase Energy does not manufacture solar panels. It builds microinverters that convert solar power into electricity. It also provides a power-management solution that is missing from the majority of solar power installations. For example, the IQ8 microinverter enables homeowners and businesses to switch easily to and from grid-supplied electricity and store energy.
While Enphase’s revenue growth remains robust, it continues to decelerate, making investors extremely nervous. It also has to contend with growing competition, limiting its market share over time.
Given its steep valuation, ENPH stock can easily lose significant momentum if recession fears come true.
Does Enphase have a strong balance sheet?
Enphase ended the most recent quarter with $1.25 billion in cash and $1.31 billion in debt. While its part of a capital-intensive industry, the company reported an operating cash flow of over $500 million and a levered free cash flow of $360 million in the last 12 months. Providing it with enough room to lower its debt and reinvest in organic growth.
What is the target price for ENPH stock?
Wall Street has a 12-month price target of $300 for ENPH stock.
Does ENPH stock pay investors a dividend?
No, Enphase does not pay investors a dividend.