Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Junk Pile

Is Enphase making Money?

Solar power is hot these days thanks to Joe Biden’s (D-Delaware) victory in the U.S. presidential election.

For instance, solar technology maker Enphase’s share price rose to a high of $128.49 on 19 November 2020. Enphase (NASDAQ: ENPH) began 2020 at $29.34 on 2 January 2020.

Enphase Energy Inc. (NASDAQ: ENPH) manufactures solar power systems and storage systems for solar electricity. Enphase claims to sell the only solar electricity system designed, manufactured, and supported by one company.

Enphase’s products include battery storage, AC modules, Microinverters, and software to operate those devices. The software includes apps and the Enphase Energy Solution, a platform that operates its products. Enphase claims its products offer one seamless home energy solution.

Is Joe Biden good for Enphase and solar?

Green energy bulls think President-elect Biden could boost solar power stocks by changing America’s direction on climate issues.

Biden wants to reduce America’s greenhouse gas emissions by appointing officials dedicated to fighting climate change, The New York Times claims. However, there could be little support for Biden’s agenda in Congress. Notably, Republicans who could control the US Senate deny climate change.

Ways Biden can help companies such as Enphase, including offering increased tax credits for homeowners and businesses that install solar panels. One way, a Biden administration can help companies such as Enphase to encourage the use of electric vehicles. Enphase’s systems could provide power for electric vehicles.

On the other hand, it is doubtful Biden can do much to promote solar power without Congressional support. Under the US Constitution, Congress writes the budget and sets tax policy.

Is Enphase Making Money?

Enphase (ENPH) makes little money. For instance, Enphase reported a quarterly gross profit of $94.98 million and a quarterly operating income of $51.76 million on 30 September 2020.

Enphase reported quarterly revenues of $178.50 million on 30 September 2020. However, in 2020, Enphase’s quarterly revenues fell from $210.03 million on 31 December 2019 to $178.50 million on 30 September 2020.

Stockrow estimates Enphase’s revenue growth grew at an astronomic rate of 105.24% in the quarter ending on 31 March 2020. The revenue growth rate fell to -6.38% on 30 June 2020 and -0.86% on 30 September 2020.

Enphase generates some cash from its business. Enphase reported a quarterly operating cash flow of $67.50 million on 30 September 2020. Enphase reported a quarterly ending cash flow of $54.54 million on 30 September 2020.

Enphase reported $262.07 million in cash from financing in the quarter that ended on 31 March 2020. I think that shows Enphase borrowed $262.07 million in that quarter. Enphase had some value in the form of $661.79 million in cash and short-term investments and $1.092 billion in total assets on 30 September 2020.

In 2020, Enphase’s assets grew from $713.22 million on 31 December 2020. Moreover, Enphase’s cash and short-term investments grew from $296.11 million on 31 December 2020.

Why is Enphase growing?

Hence, Enphase (ENPH) grew during a pandemic, which is why growth investors buy it. I think Enphase’s financials show that interest in solar power is growing because of the pandemic.

My theory is that many people fear the electric grid could collapse leading because of coronavirus leaving them without electricity. In addition, people who work from home over the internet and educate children through Zoom need reliable electricity to keep their computers running. Those people want backup electricity because they need the computer to work and generate income.

Other factors driving interest in solar are the wildfire caused brownouts in California and elsewhere. Utility Pacific Gas & Electric or PG&E shut off power to 384,000 California homes and businesses in October 2020 to alleviate fire dangers, The Sacramento Bee reports.

To elaborate, PG&E executives fear sparks from power lines could set vegetation dried out by record draughts on fire. That could cause wildfires that property owners and their lawyers will blame PG&E for.

Is Enphase Unsustainable?

Under those circumstances, many home and business owners will buy backup power systems such as the ones Enphase sells. People who work from home will have a powerful incentive to buy backup power because the computer on to work and pay the bills.

Thus, a combination of coronavirus and climate change which scientists blame for California’s draught could drive Enphase’s growth. Therefore, the end of the pandemic or the draught could reduce the demand for Enphase’s products.

In the final analysis, I think Enphase (ENPH) is an overpriced stock investors need to avoid. I see nothing in Enphase’s financial that justifies the $128.49 share price. Additionally, I’m sure Enphase’s business model is sustainable. I think Enphase is an overpriced stock with no margin of safety you need to avoid.