Enphase Energy Inc (ENPH, Financial) experienced a daily loss of -11.53% and a 3-month loss of -37.52%. Despite these declines, the company reported an Earnings Per Share (EPS) (EPS) of 3.97. This raises the question: is the stock significantly undervalued? This article provides a detailed valuation analysis of Enphase Energy, offering insights into the company's intrinsic value and potential for future returns.
Company Overview
Enphase Energy Inc (ENPH, Financial) is a global energy technology company that delivers smart, easy-to-use solutions, managing solar generation, storage, and communication on one platform. The company's microinverter technology primarily serves the rooftop solar market and produces a fully integrated solar-plus-storage solution. It derives a majority of its revenue from the United States. Despite its current stock price of $102.54, the GuruFocus Fair Value (GF Value) for Enphase Energy is $391.06, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. This valuation is computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, Enphase Energy (ENPH, Financial) appears to be significantly undervalued. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $102.54 per share, Enphase Energy stock shows every sign of being significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Enphase Energy has a cash-to-debt ratio of 1.39, which ranks worse than 57.81% of 903 companies in the Semiconductors industry. Based on this, GuruFocus ranks Enphase Energy's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Enphase Energy has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $2.80 billion and Earnings Per Share (EPS) of $3.97. Its operating margin is 22.66%, which ranks better than 85.62% of 953 companies in the Semiconductors industry. Overall, the profitability of Enphase Energy is ranked 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Enphase Energy is 50.4%, which ranks better than 94.28% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth is 60.9%, which ranks better than 86.19% of 775 companies in the Semiconductors industry.
ROIC Vs. WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Enphase Energy's ROIC is 52.7 while its WACC came in at 13.17.
Conclusion
In summary, the stock of Enphase Energy (ENPH, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 86.19% of 775 companies in the Semiconductors industry. To learn more about Enphase Energy stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
