Energy company Enphase Energy from the USA (NASDAQ ticker: ENPH) is one of the largest regional suppliers of power systems for the needs of solar power generation. The company's project is effective and successful, but there are certain doubts about its liquidity and real value. We will conduct a detailed analysis of Enphase Energy based on all available sources of information about the company, including those that may not be available to ordinary users.
What does Enphase Energy do?
The main direction of the company is the design and sale of solar microinverters. These micro-inverters convert the sun's energy into electricity and are in fact the main components of solar panels. Additionally, the product list includes control modules for solar panels. Enphase Energy's product report is not grouped, but this is not critical.
In the annual report there are a lot of technical details, but there is no detailed description of the business, which is not very good. It is only known that the company is engaged in both the sale of microinverters and the provision of services in the field of solar energy generation, develops its own software.
Let's also look at the latest numbers available to us.
Arguments in favor of buying company shares
The energy industry is very active, and Enphase Energy is on the list of the best representatives of its industry. It is important to clarify here that solar energy is actively subsidized by the governments of different countries, both directly and indirectly through other projects. Due to this, Enphase Energy quotes can be seriously inflated by ESG lobbyists.
The company benefited from the rise in prices for non-renewable energy and the active actions of the EU in terms of switching to "green" energy generation to reduce energy dependence on Russia. This can be considered the main drivers of the company's growth and its value in the future.
Enphase Energy operates predominantly in the US market, which could be a problem for them. However, in the foreseeable future, the company may well be able to increase its turnover at the expense of the European market, if it manages to get into the wave of the European Union's transition to renewable energy. There are prerequisites: in 2020, the EU paid great attention to this category of costs as part of stimulating the economy during the crisis pandemic period, so Europe's mood is quite serious.
Enphase Energy is actively developing. In addition to microinverters, it sells components and control units for solar energy generation systems, as well as ready-made kits of its own design. The evolution of the company is clearly visible: in 2019, it sold only inverters, and received profit only from the cost of equipment. On average, one average household gave the company revenue in the region of $2000. Already after 2 years, inverters have risen in price by $300, and solar panels have been added to the list of products offered, the price of which has ranged from 6,2 to 7,2 thousand dollars.
By 2023, the company will master the production of more technically advanced (and therefore more expensive) inverters, and will add charging stations for electric vehicles, control panels, niche software and other products to the line. Their implementation will raise revenue to about $12000. Judging by the plans, Enphase Energy is developing actively and in the right direction.
Possible problems
Benefits uncertainty. U.S. solar installation costs are offset by a 22% rebate on the cost of the panels, up from 2021% in 26. In 2024, benefits for households will be canceled, leaving only deductions of 10% for organizations installing solar panels. If the benefits are removed, this will lead to a serious drop in sales if the company does not reduce prices. But if it reduces them, it will significantly hit the profitability of the business.
It is also important to keep in mind the rather generous system of benefits for owners of solar panels, which is provided by the California government. This state is the leader in the solar power generation market in the United States. If they are canceled, then Enphase Energy could have serious problems amid falling sales. If the rest of the states support the California scenario, then the company's problems will only increase.
Balance sheet. The total debt for today is 1,649 billion dollars, of which 439,796 million must be repaid over the next year. Enphase Energy has the amount necessary to repay urgent obligations, but still the debt load is large. With a possible delay in the development of the company against the background of the abolition of benefits, problems with payments may arise.
The complexity of logistics. The vast majority of assets are located in Asia, where all operations with cooperating manufacturers are carried out. Against the backdrop of the well-known events around Russia and the ongoing disruptions of supply chains due to the coronavirus, you should be prepared for the fact that the company's reporting in the next two quarters will not bring positive. Also, do not forget about the growth of raw materials and components, in particular - microchips. All this is likely to have a negative impact on the company's business.
Moreover, now its indicators are already declining against the background of the factors discussed above: first of all, marginality has suffered.
Unreasonable price. The price of Enphase Energy is really strange: P/S=20 and P/E=191,4. Its capitalization exceeds $27 billion, which is a lot, and in order to pump more money into it, ESG lobbyists will have to work hard. But will the engaged banks and funds agree to buy its shares at such a high price as they are now, all the more so to carry out its pumping above the current level? There is no answer to this question.
The following chart also speaks well of the supply failure, showing how expensive it has become for companies to transport components by air.
What do analytical agencies think?
Let's see what Morningstar thinks about the fair price
Let's also take a look at what another analytical agency thinks.
What did we think on our Invest menu on 16/04/22?
We predicted that a good purchase option would be at the level of $135-120, which is actually very good and it turned out. As of 14/05/22, ENPH quotes are trading at $157. By the way, a record of the entire Invest menu is available here on the site in the section "Courses".
The result?
The company is supported by its commitment to EGS and the expectation that EGS lobbyists will support its quotes at the appropriate level, although this is not economically feasible yet.
But should you buy Enphase Energy shares today? It is recommended to see how events will develop and act based on a specific scenario:
- What will happen to carbon energy prices? If the current high prices continue, then solar generation will be in demand all over the world, which will positively affect Enphase Energy.
- What happens to benefits in California? If users of solar stations are left without benefits, it will hit the company's profits sharply. However, there is complete uncertainty here too: California regulators were going to resolve the issue of benefits a month ago, but so far the vote has been postponed indefinitely.
So investing in Enphase Energy depends on how events develop further. Although today the price of its shares, given the difficulties with logistics, raises the risk of a sell-off. Unless, of course, "green" lobbyists pump up Enphase Energy quotes for ideological reasons.