Enphase, Will The Sun Shine Again?

Enphase has seen exceptional growth throughout the covid pandemic and coming out of it , but the stock has now fallen from a high of over $330, to a recent low of $95 in April and even below $75 in last October. As this is a troubled stock which previously has been a big winner, let’s dive into the stock to see what is going on.

- What Does Enphase Do?

As nicely taken from their own filings, “Enphase designs, manufactures and sells  homeenergie solutions, like semiconductor based micro-invertors, which converts energy at the individual solar pannel level, instead of at a centralized converter for all panels. It combines this with proprietary networking and software to monitor the energy input, and for control services . It also offer battery storage systems Envoy communications gateway; and Enlighten cloud-based monitoring service, as well as other accessories. The company sells its solutions to solar distributors; and directly to large installers, original equipment manufacturers, strategic partners, and homeowners, as well as through its legacy product upgrade program or online store. Enphase Energy, Inc. was incorporated in 2006 and is headquartered in Fremont, California.”

Over the last 10 years, revenues for the company have grown at a 20.88% CAGR, for the last 5 years this number comes to 29.69%. But there is one thing that this metric doesn’t fully take in to account. During Q3’23 revenues started dropping a lot. We will discuss why later, because I won’t give all the juice immediately.

- How Does Enphase Sell Its Products

Enphase sells to distributors, who then sell to installers. Enphase also sells to a select group of large installers, strategic partners, and OEM customers. The company does have a good vision of those distributors as they know what inventories and sell through are like. The OEM customers are companies that include the micro-inverter in their solar modules, and then sell those complete modules to distributors, and installers.

- Where Does Enphase Sell?

The main sales region for 2023 was the US, with $1469108 vs International at $821678. Here we see a ratio of 64/36 in favour of US based revenues. The international revenue is mostly coming from Europe, but it also includes some South American countries, and Australia. 

International is for a large part coming from The Netherlands, about 42,8% of the international category. Growth in The Netherlands was also 79,25% in 2023, compared to 2022.
What does stand out here is that revenue in the US has declined 17% from 2022, and International has risen 44% 

- So Who Runs Enphase?

Raghu Balur
Balur is one of the founders of Enphase, and holds an MBA in Business Administrations, from Berkeley. Before he co-founded Enphase in 2006, Balur worked at Optic Engineer until 1999, and after that at Cisco as a manager from ‘99, until ‘02.

Martin Fornage
Fornage is the second co-founder of Enphase and was the CTO from ‘06, until ‘20. When he stepped down from the position as CTO, Fornage remained a strategic advisor for Enphase until he officially retired in April of ‘22.

Badri Kothandaraman
Kothandaraman joined Enphase in April of 2017 as Chief Operating Officer, but after just 5 short months took over as CEO in September of that year. Before starting at Enphase, Kothandaraman founded InnoCharge Solutions which he ran for 6 months, he worked at Cypress Semiconductor Corporation as well, where he spent 21 years, with his last position being Executive Vice President, Data Communications Division.

- Bear Arguments

High interest rates are the biggest headache this sector has. As solar is often bought with a loan, that loan has now become way more expensive, which makes the pay-back time also much longer.

Channel Inventory is another issue because as the sector was seeing a dip in demand, Enphase kept shipping their products which has resulted in the need to significantly undership their product to clear that excessive inventory.

- Bull Arguments

Demand should have bottomed, according to Kothandaraman, demand should have bottomed in Europe, as well as in all the non-California states in the United States.

Close to done with clearing channels, as the batteries are now done with being undershipped in order to clear out inventory, the micro-inverters are coming close to that point as well. This will give a nice sales boost as at the peak, Enphase tried to clear channels at a rate of $150 million per quarter.

- Conclusion

Enphase is a company that operates in a fast-growing industry that has been hit with macro struggles. This has resulted in many challenges to the business, but despite that, they have managed to keep margins up, which is a big positive. Another positive is that the clearing of channel inventory has been done aggressively, in order to get it done. This is something that blew up in their face as there was a sudden, massive demand drop due to the incredible pace at which interest rates were increased. Something that is less ideal is that the actual demand has still taken a large hit, as in the latest quarter, the company guided for around $400 million in revenues, which is still down from $700+ million at the peak.

Enphase is a company which has the best all-round solution for many people and has an incredible stream of data coming in through the SolarGraph app where the company sees all the offers being made to potential customers. The installers can also use this data in order to be able to better sell the product. If you believe that interest rates will be coming down in the coming period, it might be a good stock to dig deeper into as forward valuations seem to be a bit compressed due to high uncertainty.