Down 59% From Its Pre-Inflation Shock High, What Is Next For Enphase Energy’s Stock?

Enphase Energy’s stock (NASDAQ: ENPH), is an energy technology company that develops and manufactures solar micro-inverters, battery energy storage, and EV charging stations – primarily for residential customers. The company’s stock currently trades at $131 per share, around 59% below its level of $321 seen on September 14, 2022 (pre-inflation shock high), and has the potential for gains. Enphase stock has been hammered over 2023 by rising interest rates. It should be noted that residential solar deployments are usually financed, so a large change in interest rates is likely to affect residential solar demand in a significant way. The company also announced big cost cuts and a 25% reduction in manufacturing capacity which impacted its stock price in 2023. The company’s Q3 revenues fell 13% year-over-year (y-o-y) to $551 million, driven by volatile U.S. macroeconomic conditions and higher inventory at the company’s distribution partners along with a softening in demand in key markets of Europe. Its Q3 net income was roughly flat y-o-y at $114 million, or $0.80 per share. Looking ahead, ENPH expects revenues of $300 million-$350 million, which includes shipments of 80-100 MegaWatt Hour (MWh) of IQ Batteries, and a non-GAAP gross margin of 48%-51% with net IRA (Inflation Reduction Act) benefit and 40%-43% before net IRA benefit. Although electricity prices have risen, prospects for persistently elevated interest rates and consumer concerns about the economy suggest that a spring demand recovery is quite unlikely.

ENPH stock has faced a notable decline of 25% from levels of $175 in early January 2021 to around current levels now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the decrease in ENPH stock has been far from consistent. Returns for the stock were 4% in 2021, 45% in 2022, -50% in 2023, and 0% in 2024 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 0% in 2024 (YTD) – indicating that ENPH underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ENPH face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

Returning to the pre-inflation shock level means that ENPH will have to gain about 142% from here. While it has the potential to eventually recover to those levels, we estimate ENPH’s Valuation to be around $125 per share, almost 5% lower than the current market price. Our detailed analysis of ENPH’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
• April 2021: Inflation rates cross 4% and increase rapidly
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses
• Since August 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how ENPH stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

ENPH and S&P 500 Performance During 2007-08 Crisis

ENPH stock grew from nearly $7 in October 2007 (pre-crisis peak) to almost $8 in March 2009 (when the markets bottomed out), implying that ENPH stock gained almost 6% of its pre-crisis value. It declined from the 2008 crisis to levels of around $7 in early 2010, falling roughly 6% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of $1,540 in September 2007 to $757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of $1,124.

ENPH Fundamentals Over Recent Years

ENPH revenues grew from around $800 million in FY 2020 to about $2.3 billion in FY 2022, as the company took advantage of the continuing move toward greener energy solutions – particularly in the international markets. Earnings per share grew from around $1.07 in FY 2020 to $2.94 in FY 2022. 

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe ENPH stock has the potential for strong gains once fears of a potential recession are allayed.

It is helpful to see how its peers stack up. ENPH Peers shows how ENPH stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.