Enphase Energy (NASDAQ:ENPH) Stock a Buy: Powering Homes With Alternative Energy

Without a doubt, one of the brightest sectors in the market at this time is alternative energy. Solar and alternative energy stocks have likely been rallying for several reasons. Alternative energy technology is becoming more advanced and less expensive for consumers to purchase. The earnings for many of these companies have confirmed growth even during the pandemic, which helps to assuage fears that homeowners and businesses would avoid solar installations amid economic uncertainty. You also have a big focus on renewable energy thanks to presidential candidate Joe Biden’s proposed “Green New Deal”. It appears that plenty of investors are piling into these stocks with the assumption that we will have a Democratic president in November.

While it’s difficult to predict who will win the presidency, the truth is that companies involved in clean energy could have massive upside over the long-term regardless of the election outcome. One stock that has been an especially strong performer in the sector is Enphase Energy (NASDAQ:ENPH). It’s a company that provides home energy management solutions in the U.S. and internationally. The potential for the innovative technology that this company produces is undeniable. Let’s take a look at Enphase Energy below and detail a few reasons why it could be a nice buy.

Enphase Energy Solar Solutions for Residential Homes

Enphase Energy is the world’s leading supplier of solar microinverters. They are essentially small semiconductor-based systems that convert solar energy into electricity to power residential homes. Over half of all solar installations in North America are done with microinverters, and that number could increase substantially over the years. If you aren’t familiar with solar panels, the standard “string” design generates different amounts of power since all of the panels are connected and can be negatively impacted by one poor-performing panel. Things like shade, dirt, and temperature differences can all lead to problems for standard solar panels as one bad panel will drag down the entire system.

That’s why Enphase’s microinverters have such a big advantage. Since each microinverter is monitored and optimized individually, homeowners can generate the maximum amount of power and avoid the downfalls of the standard string installation of solar panels. Microinverters offer improved performance and no single point of failure, which is a huge plus for people that are interested in powering their homes with solar energy. They are also known to have better safety features and lower maintenance costs than string inverters, although they are more expensive to buy upfront.

In addition to the company’s microinverters, which just began shipping to Australia and Europe, Enphase also has created a fully integrated solar-plus-storage solution. Home energy storage is another market segment with a lot of growth potential, and Enphase’s latest Encharge storage systems offer reliable backup power for homeowners. By widening its addressable market and moving into home energy, this company has the potential to become a true powerhouse in the alternative energy space.

Enphase Energy Earnings and Revenue Growth

We know that the alternative energy sector has been hot, but investors should confirm that these companies are truly experiencing growth before considering an investment. With Enphase Energy, you have a company that was able to double its sales to more than $600 million in 2019. It also saw revenue growth of 105% year-over-year in Q1, which helps to confirm that Enphase is seeing strong demand for its products.

Although the pandemic put a dent in the Enphase’s sales in the second quarter, it was still able to grow sales by 41% year-over-year during the first half of the year. The company was also able to ship 1.1 million microinverters and reported a record non-GAAP gross margin of 39.6% in Q2. It’s also nice to see that Enphase generated a 71% year-over-year increase in free cash flow of $21 million in Q2 during a period when many of the company’s engineering and certification activities were slowed down due to the pandemic. Keep an eye out for Enphase’s Q3 earnings release later this month on October 27^th.

Final Thoughts

Enphase Energy is one of the best solar energy companies to consider owning thanks to its revolutionary technology, strong earnings growth, and ambitions to become a leader in home energy storage. Although the stock has been on quite the run and is up over 270% this year, investors that are interested in Enphase might want to consider adding shares on pullbacks. With that said, keep in mind that these solar stocks can be extremely volatile and the market is likely pricing in a Democratic victory that may or may not happen.