If any company needs a radical economic pivot, it’s solar energy technology specialist Enphase Energy (NASDAQ:ENPH). Once one of the big winners of the COVID-19 pandemic, the economic headwinds of elevated inflation and high borrowing costs finally caught up to the company in late 2022. Since then, it’s been a shell of its former self. Further, the slowing EV sector poses challenges for Enphase’s home charging solutions. I am neutral on ENPH stock due to its ambiguity.
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ENPH Stock: Financials Point to Steep Challenges
Up until the first quarter of Fiscal 2023, circumstances appeared fairly bullish for ENPH stock. Yes, the security itself suffered significant volatility in the charts. However, a strong showing could help reignite optimism in the business. Unfortunately, the Q1 print left many investors anxious.
For earnings per share, Enphase delivered $1.37, beating out the consensus estimate of $1.23. However, on the revenue front, the company only managed to print $726.02 million. While this figure exceeded the consensus view of $724.45 million, it wasn’t that far removed from Q4 2022’s top line of $724.65 million. Stated differently, operational momentum was slowing.
Even more concerning, ENPH’s subsequent quarters revealed a decline in revenue. Therefore, those who dumped ENPH stock at the first hint of trouble in Q1 ended up being rewarded for their pessimism. Not only that, but the fundamental backdrop of accelerating consumer prices and rising interest rates imposed additional anxieties.
On the front-facing side, prospective Enphase customers had to scale down their acquisitiveness due to the monetary policy headwinds. On the back end, Enphase’s expansionary directives through financing would become more onerous due to the higher rates. In some ways, ENPH stock encountered a perfect storm.
Not surprisingly, then, when rumors started to circulate late last year that the Federal Reserve would consider implementing interest rate cuts, Enphase and the broader solar energy industry rejoiced. At a minimum, lower rates would help boost the operational side and incentivize customers to consider renewable energy solutions.
However, more recent data has shown that inflation has been stickier than expected. Subsequently, this framework potentially reduces the odds that the Fed will reduce rates to the desired magnitude, if at all. It’s no coincidence, then, that ENPH stock has underperformed this year, losing almost 18% year-to-date.
Even more problematic, a key turnaround catalyst may come under fire.
Enphase Might Not See Help from the EV Space
On Enphase’s website, prospective investors can gain easy access to its investor presentation for February 2024. On slide 18 of this document, the solar energy specialist notes that the EV sector in the U.S. is expanding at a compound annual growth rate (CAGR) of 40%. The data comes from S&P Global Platts in 2021.
Frankly, it’s odd that Enphase decided to use this data point because it doesn’t take into account the struggles that the industry is facing currently. Without the headwinds of fading consumer demand and a sector-wide price war, it would be easier to trust ENPH stock.
One of Enphase’s businesses involves selling and installing home EV charger systems. A few years back, when seemingly every market pundit was declaring that EVs represent the future of mobility and transportation, this system seemed a sure winner for ENPH stock. However, circumstances have changed recently.
Investors now find themselves in a paradigm where legacy automakers have begun scaling back or delaying their EV plans. By logical deduction, if demand was still robust, there would be zero need for retreating.
In turn, the development equates to a reduced total addressable market for Enphase. That’s a massive headache because analysts already weren’t expecting much from the company. On average, they project Fiscal 2024 sales to reach $1.62 billion, a 29.4% reduction from last year’s haul of $2.29 billion.
Now, in 2025, Wall Street experts believe that revenue of $2.29 billion is reasonable. However, that would only put it on par with 2023 sales. Even worse, because EVs are performing so poorly, it’s questionable that Enphase can depend on its home charging systems to help reach these estimates.
Watch Market Sentiment Closely
On the positive side, if the Fed decides to lower interest rates and if EV sales get out of their slump, ENPH stock could be an intriguing opportunity. Also, higher utility bills would cynically cause homeowners to at least consider the renewable option. It’s not completely a bearish narrative.
Still, at this point, investors need to monitor market sentiment metrics carefully. Right now, according to technical data from TipRanks, the bears seem to have control of the market. At a minimum, ENPH stock likely needs to rise to the $120 level and establish a support baseline there.
Otherwise, if the bulls can’t get to and hold $120, the bears would be all too eager to drive the share price down, especially with the EV charging segment facing credibility issues.
Wall Street’s Take on Enphase Energy
Turning to Wall Street, ENPH stock has a Moderate Buy consensus rating based on 16 Buys, eight Holds, and one Sell rating. The average ENPH price target is $130.64, implying 21.27% upside potential.
The Takeaway: ENPH Stock Faces an Unwanted Credibility Issue
With the consumer base and business community struggling from high inflation and elevated borrowing costs, it was no surprise that ENPH stock eventually gave way to pressure. However, the comeback story of 2024 has been interrupted with questions about monetary policy. More pressingly, the EV sector presents demand headwinds for Enphase’s home charging solutions. If ENPH can’t maintain certain key price levels, it may be time to consider a different opportunity.
