Enphase Energy May be Offering Investors a Second Chance

Key Points

• Enphase Energy has given up all of its post-earnings gains the day after reporting earnings that beat on the top and bottom lines. 
• Investors may react to the company’s soft guidance for the current quarter. 
• The company’s core microinverter products carve out a key niche in the solar sector. 
• The fall in the stock may offer opportunistic investors a good entry point.  

The morning after it reported strong fourth quarter earnings, Enphase Energy, Inc. NASDAQ: ENPH is painting a confusing picture for investors. ENPH stock shot up nearly 4% in after-hours trading after the company’s earnings report.  

However, the stock has given up all those gains and more and is down 6.8% from that high in midday trading. This is likely due to the soft guidance that the company gave for the first quarter. Despite beating on the top and bottom lines, Enphase expects revenue to drop based on the midpoint of its guidance due to seasonality and the macroeconomic environment. 

The fall in the stock may also be mirroring the broader market. The three major indices are down, particularly the NASDAQ exchange, where Enphase stock trades.  

For opportunistic investors, however, this may be an opportunity to get into a clean energy stock before it makes another run to an all-time high. Enphase plays a key role in the solar sector. This sector has been in a slump lately, but it still has a bullish outlook.  

Carving Out a Niche in the Solar Sector 

If you like story stocks, Enphase has a great one for clean energy investors. As I’ve written before about Enphase, its IQ8 microinverters address a key limitation to traditional solar panels. Specifically, what happens when the sun doesn’t shine.  

The microinverters convert direct current (DC) power from solar panels to alternating current (AC) power. This allows the efficient use of solar power or cloudy days or during the evening hours. Another benefit to microinverters is the way they remove the risk of a single-point failure. 

And Enphase also offers consumers a complete energy system with batteries and software solutions that “bank” the energy from solar panels to ensure the company’s consumers have adequate power no matter what the outside weather conditions dictate.  

The solar sector, and clean energy stocks in general, may have also just received a boost from the State of the Union address on February 7. President Biden once again advocated for clean-energy initiatives, including large tax benefits to solar manufacturers as part of the Inflation Reduction Act (IRA) passed in 2022. In its earnings report, Enphase announced it would be adding six manufacturing lines for its microinverters as a result of the IRA.  

A Second Chance at Outsize Gains? 

Enphase stock closed at a 52-week high of $339.92 in December 2022. With all the headwinds working against equities, it’s not surprising that investors were looking to take some profit. ENPH stock has climbed a whopping 7,600% in the last five years.  

I’m not predicting that or anything close to that. But with the stock down 35% from its all-time high, conditions do seem good for Enphase to recover. Two favorable factors come from the analysts and institutional investors. 

Since the beginning of February, the opinion of the analysts has been split in terms of the company’s price target. Some have raised, and some have lowered their price targets. But the consensus has ENPH stock at $305.48, a 38% gain from its current price.  

The stock also enjoys a high degree of institutional ownership at about 74%. This can be positive for retail investors because this group has much to gain when the stock goes up. But it can also be a negative as institutional investors dumped a significant amount of ENPH stock leading to the December sell-off.  

Still, the fact that institutions remain invested should be seen as a good sign for investors looking to take advantage of a second chance on one of the more intriguing solar stocks.