Enphase Energy (ENPH) stock price has moved sideways this year as concerns about the ongoing turnaround continued. The stock was trading at $110 on Wednesday, where it has been in the past few weeks. This price is about 67% below the highest point in 2022, giving it a market cap of over $14.1 billion.
Potential catalysts for ENPH
Enphase Energy share price has moved sideways as traders focus on three key potential catalysts in the solar energy industry.
The first one is political after the last debate between Kamala Harris and Donald Trump, in which most people believe that she had a better night. In an election that is expected to be relatively close, this debate could tilt the end result.
Ideally, Harris is seen as a more friendly candidate for the solar energy industry than Trump, who has focused on the fossil fuel industry.
However, as I wrote on the First Solar stock, the president of the US does not have a big impact on how stocks in a certain industry do. In the case of Enphase, its stock price has dropped sharply even with Joe Biden and Kamala Harris being the leaders.
Nonetheless, the stock may see some gains because of the narrative of her winning the election in November.
Second, the company may benefit from the actions by the Federal Reserve, which is expected to start cutting interest rates next week.
Recent data showed that the US inflation dropped to 2.5% in August, the lowest level in over two years. With the unemployment rate stuck above 4.0%, the Fed will likely cut rates by 0.25% next week and two more later this year.
The solar energy industry has gone through a rough patch in the past few years because of higher interest rates in the US and other countries. To deal with the elevated inflation, the Fed hiked rates to 5.50%, the highest level on over two decades.
Therefore, Enphase and other firms will benefit as rates start falling, making solar power more affordable. In a letter to investors, Badri Kothandaraman, Enphase’s CEO said:
“The solar industry suffered through a period of slowdown in overall demand. This was primarily because of high interest rates in the United States, the NEM 3.0 transition in California, and macroeconomic conditions in Europe.”
Third, Enphase Energy could benefit from the ongoing turnaround efforts by the management and the cost measures it has implemented. In particular, the management has reduced its inventory, which contributed to its slowdown last year.
ENPH financial results
The most recent financial results showed just how Enphase’s business is struggling. Its revenue for the quarter came in at $303 million, down sharply from the $711 million it made in the same quarter in 2023.
What was notable is that its revenue in the United States jumped by 32% while remaining flat in Europe. It was a different situation in 2023 as Europe was its fastest-growing market.
Enphase Energy’s margins have also been in a downtrend. Its gross margin was 45.2% in Q2, down from 45.5% in Q2’23.
Subsequently, the company’s net income narrowed from over $157 million to $10.8 million, showing the challenges that the compay is in.
Analysts expect that Enphase’s revenue for the year will be $1.4 billion, down by 38% from what it made last year. It will then grow to $2.02 billion in 2025.
These results mean that the company is fairly overvalued, with its $14.9 billion market cap and $14.63 billion enterprise value. Enphase had a net profit of $438 million last year, giving it a trailing P/E multiple of 34, which is quite pricey for a company that is no longer growing. Its forward P/E ratio s 110, higher than that of companies like Nvidia and Microsoft.
Enphase Energy has a long-term debt of $1.2 billion against $1.6 billion in cash and short-term investments. This makes its balance sheet quite strong.
Enphase Energy stock price analysis
ENPH chart by TradingView
The weekly chart shows that the ENPH share price peaked at $340 in 2022 and then suffered a harsh reversal to the current $110 as it went through substantial challenges.
The stock formed a death cross in December as the 200-week and 50-week moving averages crossed each other. Since then, the stock has been forming a symmetrical triangle pattern that is shown in green.
This triangle pattern is part of the bearish pennant pattern, which often leads to more downside, especially now that it is nearing the confluence level.
The stock has remained below the moving averages while the accumulation/distribution indicator has continued falling.
Therefore, at this stage, chances are that the stock will make big moves in the coming weeks. While the move could happen in either direction, chances are that it will have a strong bearish breakout, which could see it drop to $74.9, its lowest swing in November 2023.
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