Enphase Energy shares fell by -3.4% during the day's afternoon session, and are now trading at a price of $135.22. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
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 40.6 and a P/B ratio of 18.85.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Enphase Energy's PEG ratio is 1.08, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
An Exceptionally Strong Balance Sheet:
| 2020-02-21 | 2021-02-16 | 2022-02-11 | 2023-02-13 | |
|---|---|---|---|---|
| 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 |
| Depreciation & Amort. (MM) | -$14 | -$18 | -$31 | -$59 |
| Earnings Per Share | $1.22 | $0.94 | $1.03 | $3.33 |
| EPS Growth | n/a | -22.95% | 9.57% | 223.3% |
| Diluted Shares (MM) | 132 | 142 | 141 | 137 |
| Free Cash Flow (MM) | $154 | $237 | $405 | $791 |
| 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 | -0.58 | -1.88 | 3.74 | 2.01 |
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.
