Source: Beast Finance Author: Beast Finance
Key Metrics for Enphase Energy Stock
A lot of focus has been on Enphase Energy's (ENPH) key metrics lately, including the company's second-quarter guidance and recent stock price correction.
After the market close on April 25, 2023, Enphase Energy announced its financial results for the first quarter of the year. Enphase Energy's Q1 2023 results were pretty good, with its EPS growing 73.4% YoY, from $0.79 in Q1 2022 to $1.37 in Q1. Enphase Energy's non-GAAP adjusted actual EPS for the first quarter also beat the Wall Street consensus estimate of $1.22 per share by 12.2%. In addition, Enphase Energy's revenue in the first quarter of 2023 also increased by 64.5% year-on-year to $726 million, 0.4% higher than Wall Street analysts' consensus forecast.
Enphase Energy's financial guidance for the second quarter of 2023 was disappointing compared to its higher-than-expected first-quarter revenue and EPS. At the midpoint of the company's management guidance, Enphase Energy expects its revenue to grow 36.7% year-over-year in the second quarter of this year to $725 million, a notable improvement from Enphase Energy's first-quarter revenue growth of 64.5% year-over-year. slow down. Enphase Energy's second-quarter revenue guidance was also 4.6% below analysts' previous estimate of $760 million. Additionally, the company's guidance states that Enphase Energy's GAAP gross margin will also decline from 45.0% in the first quarter of 2023 to 42.5% in the second quarter of 2023.
After Enphase Energy released its disappointing second-quarter 2023 guidance on April 25, 2023, Enphase Energy's stock price fell 29.6%, compared with the S&P 500's decline of only 0.3%. While Enphase Energy's stock price has fallen recently, the company's stock price has risen by more than 3,000% in the past 5 years.
Why has Enphase Energy's stock price risen over 3000% in 5 years?
According to S&P Capital IQ, Enphase Energy's stock price has risen over 3000% over the past 5 years, 3514% to be exact. The S&P 500 has only risen 53% over the same period. In other words, Enphase Energy's share price performance over the past five years has been stellar in both absolute and relative terms.
Considering Enphase Energy's recent revenue growth and improving profit margins, Beast Finance believes that Enphase Energy's share price performance over the past five years is very reasonable.
Enphase Energy's five-year compound annual growth rate has reached 52.1%, from $286.2 million in fiscal year 2017 to $2,330.9 million in fiscal year 2022. During this period, the company's microinverter shipments also increased from 2.9 million units and 837 MW in the fourth quarter of 2017 to 4.9 million units and 1952 MW in the fourth quarter of 2022. As more and more homes install solar panels, the demand for microinverters is also growing, so Enphase Energy is also benefiting from this trend.
On the corporate side, Enphase Energy has launched new products and expanded its product portfolio in recent years. Enphase Energy's "average revenue per user" has also expanded from $2,000 in 2019 to $12,000 in 2022 due to a more comprehensive product portfolio, according to its internal analysis.
Enphase Energy Outlines Initial Profit Targets at Its 2017 Analyst Day
In the Analyst Day report in June 2017, Enphase Energy set a goal of achieving a gross profit margin of 30% and an operating profit margin of 10%, and carried out a number of initiatives such as product structure optimization and cost control. Although Enphase Energy's operating profit in fiscal year 2017 was a loss, the gross profit margin was only 19.6%. But according to S&P Capital IQ data, after just two years, Enphase Energy's gross profit margin and EBIT margin reached 35.4% and 16.5%, respectively.
Enphase Energy's updated 2021 margin target
Enphase Energy has since raised its gross and operating margin targets to 35% and 20%, respectively, as shown in the chart above. In fiscal 2022, Enphase Energy has achieved a gross margin of 42.6% and an operating margin of 29.6% on a non-GAAP basis, well ahead of the company's latest financial goals.
In short, Enphase Energy's five-year compound annual growth rate has exceeded 50%, and its gross profit margin has also increased by more than 20 percentage points during the same period, which indicates that Enphase Energy's future stock price should perform as well as it has in the past 5 years.
Is Enphase Energy Overvalued?
Boldbeast Finance believes that the valuation of Enphase Energy is reasonable, neither overvalued nor undervalued.
According to S&P Capital IQ, the market values Enphase Energy at 20.0 times the consensus EV/EBITDA forecast for the next 12 months. This compares to the current sell-side analyst consensus forecast for Enphase Energy's fiscal 2023-2027 EBITDA CAGR of +20.1%.
The rule of thumb for the P/E to PEG ratio is that assuming a stock's P/E equals its earnings growth rate, implying a PEG multiple of 1, the stock is reasonably valued. Applying the same reasoning to enterprise-based valuation metrics, the market values Enphase Energy at reasonable.
Is it possible that Enphase Energy shares will continue to rise?
Beast Finance believes that Enphase Energy's stock price should remain range-bound in the short term, rather than sharply rising and falling.
A key factor is its valuation. Enphase Energy's current EV/EBITDA multiple of 20.0 seems reasonable as it is in line with the company's projected EBITDA growth rate, as discussed in the previous section. Furthermore, while Enphase Energy's five-year average EV/EBITDA multiple is higher at 40.0x, the company has achieved a +183% EBITDA CAGR over the 2018-2022 fiscal year.
Another key factor is Enphase Energy's business outlook, which we discuss in the next section.
What issues should investors pay attention to?
Beast Finance believes that investors must take into account Enphase Energy's short-term and long-term growth prospects when evaluating whether Enphase Energy's stock is worth investing in.
As mentioned earlier, Enphase Energy's financial guidance (in terms of revenue growth and gross margin) for the second quarter of 2023 was lower than market expectations. During the company's first-quarter 2023 earnings call, Enphase Energy explained that rising financing costs and California's transition to NEM 3.0 are impacting demand. Specifically, Enphase Energy mentions that "installers are not adding staff to accelerate installation" of solar panels because they are "focused on cash flow due to the high interest rate environment and are looking for clarity on NEM 3.0 requirements."
Given Given the challenging financing environment, it is easy to understand why installers have become more conservative in their expansion plans. Regarding NEM 3.0, the self-proclaimed Enphase Energy predicts that NEM 3.0 will increase the investment payback period of solar installations from 5-6 years (NEM 2.0) to 9-10 years. Compared with NEM 2.0, NEM 3.0 saves more than NEM 2.0 is 60% lower.
In the long run, base effects are already at work. Given Enphase Energy's strong growth in recent years and the company's market leadership, Beast Finance expects that Enphase Energy's growth will slow down in the next few years. In the previous part of this article, we've analyzed expectations for slower EBITDA growth for Enphase Energy over the next few years. In addition, according to Piper Sandler's research report, Enphase Energy's current market share in the US residential solar market has reached 65%. So we assume that Enphase Energy's market share will not increase as much as before, but even if it does not increase significantly, it will not have a huge impact on Enphase Energy's future growth.