We've been asking ourselves recently if the market has placed a fair valuation on Enphase Energy. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Enphase Energy's Earnings and Assets:
Enphase Energy, Inc., together with its subsidiaries, designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry in the United States and internationally. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Enphase Energy has a trailing 12 month P/E ratio of 49.3 and a P/B ratio of 22.55.
Enphase Energy's PEG ratio is 1.51, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Exceptionally Strong Balance Sheet:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $624 | $774 | $1,382 | $2,331 |
| Gross Margins | 35.4% | 44.7% | 40.1% | 41.8% |
| Operating Margins | 16.9% | 24.1% | 15.6% | 19.3% |
| Net Margins | 25.81% | 17.3% | 10.52% | 17.05% |
| Net Income (MM) | $161 | $134 | $145 | $397 |
| Net Interest Expense (MM) | -7 | -19 | -44 | 4 |
| Net Interest Expense (MM) | -$7 | -$19 | -$44 | $4 |
| Depreciation & Amort. (MM) | -$14 | -$17 | -$32 | -$59 |
| Earnings Per Share | $1.23 | $0.95 | $1.02 | $3.24 |
| EPS Growth | n/a | -22.76% | 7.37% | 217.65% |
| Diluted Shares (MM) | 132 | 142 | 143 | 137 |
| Free Cash Flow (MM) | $124 | $196 | $300 | $698 |
| Capital Expenditures (MM) | -$15 | -$21 | -$53 | -$46 |
| Net Current Assets (MM) | $59 | $217 | -$187 | $6 |
| Current Ratio | 2.51 | 1.75 | 3.33 | 3.55 |
| Long Term Debt (MM) | $103 | $5 | $952 | $1,199 |
| Net Debt / EBITDA | -1.31 | -2.24 | 4.64 | 1.59 |
Enphase Energy benefits from growing revenues and increasing reinvestment in the business, exceptional EPS growth, and a pattern of improving cash flows. The company's financial statements show an excellent current ratio and healthy leverage. However, the firm has slimmer gross margins than its peers. Finally, we note that Enphase Energy has weak operating margings with a stable trend.
