Alert: Down 52% Is This Energy Stock a Roaring Buy?

Investment Alert: Buy Enphase (ENPH) Under $125/share

Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.

Enphase Energy (NASDAQ:ENPH) has carved out a substantial economic moat in the residential solar power solutions market against seemingly all odds.

With the share price cut by more than half this year, the valuation is as compelling as ever. We explore what the future may hold for Enphase and why now might be the optimal time to jump on board.

Key Points

• Enphase’s financial metrics are strong, notably its ratio of operating income to revenue, which stands at almost 24%. 
•  The company has a projected serviceable addressable market of $23 billion by 2025. 
• With a 50.7% upside potential to $181 per share, both our data and analysts’ forecasts suggest that the stock is undervalued.

How Enphase Is Building a Big Moat

One primary reason for the bullish thesis is the company’s increasing economic moat. Warren Buffett popularized this concept, which is a competitive advantage that protects a company from its rivals, and despite being in a relatively nascent industry, Enphase has already established one.

Enphase specializes in creating microinverter technologies that are significantly more efficient and reliable than traditional string inverters. This technology differentiation allows it to capture and maintain a substantial share of the solar inverter market, essentially forming an economic moat.

Clearly, the technology advantage has been translating well to the firm’s financials.

Financially Impressive

A whole lot of metrics jump out at us but let’s begin with the firm’s operating income relative to its revenues. To give you a sense of what a really good metric would be, look no further than Apple which reports a ratio of 28%. Now we turn our attention to Enphase, and drumroll, it reported a number barely shy of 24%.

That’s an impressive figure given the traditionally high costs associated with renewable energy technologies and implies a greater economic buffer, allowing the company more flexibility to invest in growth and innovation, or to weather economic downturns.

Moreover, the company’s sequential growth in operating income to revenue ratio suggests an increasingly efficient operation. For investors, this means that the company is not just growing, but growing smartly by converting more of its revenues into actual profits.

Enphase is reported to have a $23 billion serviceable addressable market by 2025 while its top line has grown at a CAGR of 48% annually over the past 4 years. Given how choppy the 2022 stock market was, that kind of fundamental growth is impressive, and it’s no wonder TJ Rodgers, a Silicon Valley legend recently snapped up shares.

A Wise Addition to Your Portfolio?

Enphase offers a compelling investment case. The company shows consistent growth in key financial metrics, operates in a burgeoning industry, and has successfully expanded into international markets—all while maintaining a strong economic moat.

According to our numbers, Enphase currently has 50.7% upside potential to $181 per share. Notably, even our bullish forecast is below analysts, who have a $183 price target on the stock.

These factors make Enphase more than just a flavor-of-the-week stock; it’s a stock with untapped potential worth considering for long-term investment.