Enphase Energy, Inc.

ENPH Details

Enphase Energy, Inc. (NASDAQ: ENPH) is a global energy technology company that manages the solar generation, storage, and communication under its umbrella. Further, it offers microinverters and Enphase residential and commercial systems to over 130 countries.

Result Performance – For the First Quarter Ended 31 March 2021 – (Q1FY21)

For the first quarter ended 31 March 2021, net revenues grew by 47% YoY to $301.8 million mainly due to the 22% rise in the microinverter unit volume shipped mainly due to business growth in the US. In addition, the revenue was supported by the favourable product mix as it sold more IQ 7+ microinverters compared to IQ 7 microinverters, followed by a rise in the average selling price due to customer mix, as well as shipments of Enphase Encharge storage systems to customers in North America. The company sold 2.5 million microinverter units in Q1FY21 over 2.0 million units in Q1FY20. Meanwhile, GAAP net income was reported at $31.7 million, including a non-cash loss of $56.4 million on the partial settlement of convertible notes, while non-GAAP net income stood at $78.7 million.

Key Data (Source: Company Reports) 

Risk:

The business is dependent on demand for solar energy solutions and if demand does not grow or grows at a slower rate, the business will suffer. The dynamics of the business are changing which makes it difficult to evaluate current business and prospects. Further, the company is dependent on suppliers for key components and products.

Outlook:

The company is expected to report revenue within the ambit of $300.0-$320.0 million, while the GAAP gross margin is expected in the range of 37.0-40.0% and non-GAAP gross margin to be between 38.0-41.0%, excluding stock-based compensation expenses. Further, GAAP operating expenses is expected between $70.0-$73.0 million, including $17.0 million assumed for stock-based compensation expenses and acquisition-related costs and amortization. The non-GAAP forecast includes increased investments in new products, software, and marketing and a $3.5 million accrual for deferred consideration from the acquisitions.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After having given correction beyond the 50% retracement level of $124.07, the stock rebounded beyond the 23.6% retracement level of $179.11 and has given a weaker close at $181.83 for the ongoing week, forming an ‘Inverted Hammer’ which is towards confirmation of a bearish reversal of the trend. The technical indicator RSI with a reading around 59 and a curve at the end pointing down suggests softening of bullish momentum for the stock.

Going forward, the stock may have resistance around $200 whereas support could be around the 38.2% retracement level of $148.67.

Stock Recommendation:

The stock has witnessed an increase of ~68.64% in 9 months and an increase of ~259.06% in 1 year. The stock has a 52-week low and high of $49.25 and $229.04, respectively.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a decline of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering lower ROE and the associated business risks. Considering the movement in the stock price, we advise investors to liquidate the stock.

Thus, we give a “Sell” recommendation on the stock at the current market price of US$181.83 per share, down by 3.7% on 7^th July 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.