The situation in Europe is unfolding with alarming rapidity. There are also some potential opportunities emerging. For solar microinverter maker Enphase Energy (ENPH), Europe represents a major opportunity. The company was up 8% in pre-market trading earlier today, and those gains have continued into the trading session.
I’m bullish on Enphase because it’s certainly got a point about the potential in Europe. Will it be enough? That remains to be seen. What we know so far is certainly eye-opening.
The last 12 months for Enphase Energy have been packed with ups and downs. In fact, it’s recently off a spike that kicked off earlier this month but lost quite a bit of ground as the month progressed.
Its latest plans to take advantage of conditions in Europe seem to be helping, and the company’s earnings report is also contributing to gains. Enphase’s latest earnings report featured earnings of $0.77 per share, easily ahead of Zacks consensus estimates that called for $0.68 per share. Revenue also proved a beat as the company posted $441.29 million, beating the Zacks estimates by 1.63%.
Wall Street’s Take
Turning to Wall Street, Enphase has a Strong Buy consensus rating. That’s based on 18 Buys and four Holds assigned in the past three months. The average Enphase Energy price target of $228.43 implies 37.6% upside potential.
Analyst price targets range from a low of $158 per share to a high of $307 per share.
Investor Sentiment Turning Cloudy
As novel a notion as Enphase has with pursuing Europe, investor sentiment seems much less sure about the concept. Analysts are putting out a huge buy signal. However, investor sentiment seems more interested in getting out than getting in.
Insider trading, for example, shows a distinct sell-off pattern. For the last year, sell transactions have led buy transactions by 35 to 23. The last three months have been a bit different, with sellers leading buyers only 12 to 11, but selling is still leading the field.
Meanwhile, the picture is similar for retail investors. TipRanks data revealed that, in the last seven days, the number TipRanks portfolios holding Enphase stock is down 1.4%. For the last 30 days, it’s down 2.5%. Enphase Energy’s dividend history also doesn’t bear any close scrutiny, as it doesn’t exist.
The sole exception to this is hedge funds, which seem more interested in Enphase. Hedge funds, based on the TipRanks 13-F Tracker, have increased their purchases of Enphase stock for the second quarter in a row. The increase is negligible in quantity—just an extra 6,400 shares, roughly—but it is an increase nonetheless.
Taking Europe by (Solar) Storm
Enphase’s plan may seem opportunistic. For business, that’s the nature of the beast. The company plans to “triple down” on Europe, especially given the fragile nature of the energy infrastructure therein right now.
Word out of CEO Badri Kothandaraman says that the company is looking for sequential growth of around 40% in Europe.
Enphase Energy noted that homeowners increasingly want “energy independence.” Energy independence basically means homes that make their own power. That’s often preferable to relying on a distribution grid that is often far, far out of their control.
Recent moves by Russia, including the demand for payment in rubles for natural gas supplies, make the picture clearer. It’s no surprise that European homes would want to generate their own power.
Thus, we establish that demand is present, but how about supply? Demand is a vital component of a business equation. However, demand is worthless without supply to match it. Kothandaraman notes that supply chain issues are actually easing. That suggests that the supply chain hasn’t been as much of a problem in recent weeks.
This suggests prime conditions for Enphase ahead. There’s a clear demand for the product. It can also likely supply the demand as supply chain issues are loosening on Enphase products.
If Enphase can pull out those gains that it’s projecting, that’s going to mean a huge jump to the bottom line and, from there, share prices, at least in the short term.
The long term, however, may be a different matter. Enphase is making pushes into new markets. Eventually, it will run out of homeowners interested in buying power supplies.
There will be, of course, demand for repairs and replacement items to keep sales going. However, the nature of Enphase’s product suggests that some front-loading will take place. There’s no subscription or service component here. The purchases made won’t need supplementing for potentially years to come.
Concluding Views
The general demand for backup power systems is on the rise. We’ve already seen as much in the U.S., where Generac (GRNC) opened a whole new production plant in October 2021 to keep up with demand.
Enphase is suffering from a decline in investor sentiment. However, it’s also got solid upside potential to it. It also has the support of analysts and hedge funds. A clear goal in mind certainly doesn’t hurt either.
With Enphase clearly targeting Europe amid some significant issues in energy supply, the conditions seem favorable for further gains. A simple confluence of supply and demand makes me bullish on Enphase Energy.
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