Alert: 46% Upside in Forgotten Solar Play

Investment Alert: Buy Enphase (ENPH) Under $170

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.

At one time, solar stocks were in vogue, powering to higher highs year after year. Enphase was among the storied solar stock that hit $220 per share in 2020, $270 per share in 2021 and $335 per share in 2022.

Then the bottom fell out and solar stocks, including Enphase, came crashing back to earth. But we think a prime time opportunity to snap up Enphase has presented itself both technically and fundamentally. The combination of the two makes for a compelling reward-to-risk tradeoff.

Key Points

• Enphase share price is slightly above long-term support and a long way below its all-time highs from 2022.
• Fundamentally, the company has grown revenues quickly over the past 3 years and generated a high return on invested capital.
• Analysts have calculated that fair value sits at around $244 per share, representing upside of approximately 46% from current levels. 

The Bullish Technical Case

A mixed-martial arts fighter once said that the fight game is simple. It’s about “I hit you more than you hit me.” His point was that you could easily get lost in the details of jiu jitsu, wrestling, boxing, kickboxing and so on but ultimately the goal is simple. And in trading a similar expression could be used, albeit distilled to “I make more than I lose” – so how do you do that?

You limit risk and cut losers quickly, and let winners run. You buy when the downside is limited and the upside is much greater. And that’s where Enphase sits technically currently.

You can see from the technical chart below that Enphase has fallen back to long-term support and recently bounced off of it. Trading near $170 per share, it’s over 50% lower than where it peaked last year.

If support holds, it shows the downside is indeed limited while the upside appears to be clear blue skies; there’s a long way to run. Should support at $155 per share be violated, it’s time to cut and run, take the hit and move on.

The Fundamental View

Now let’s turn our attention to the fundamental perspective. On average, analysts have pegged $244 per share as fair value. That would translate to 46% upside in Enphase from current levels.

When we dug into the numbers, we saw a company with high quality earnings and solid free cash flows. Revenue growth has been accelerating and the company is producing high returns on invested capital.

There is lots to like a company that has accelerated year-over-year growth from $774 million in 2020 to $1.3 billion in 2021 and $2.3 billion in 2022. This is a company that is clearly executing well, and analysts know it, and have concluded it’s significantly undervalued at current levels.

Conclusion

The bottom line is both fundamentally and technically, Enphase is attractive now. It has a margin of safety when analyzing its financials. And its technical charts shows limited downside risk and a whole lot of upside potential.