Shares of Enphase Energy (NASDAQ: ENPH) soared 22% in February, according to data provided by S&P Global Market Intelligence. The energy technology company's fourth-quarter results helped power the surge in its stock price. While revenue and earnings declined sharply, the company believes a bottom is near.
Approaching a bottom
Enphase's revenue fell to $302.6 million during the fourth quarter, down from $551 million in the third quarter and $724.7 million during the year-ago period. Earnings declined to $0.15 per share, down from $0.80 per share in the third quarter and $1.06 per share in the year-ago period.
Despite the challenging market conditions, Enphase produced $15.4 million in free cash flow during the fourth quarter after funding $20.1 million in capital expenses. That enabled it to end the year in a strong financial position. It had $1.7 billion in cash and marketable securities at the end of the year, even after spending $100 million to repurchase shares during the fourth quarter. Enphase launched a $1 billion share repurchase program in July to capitalize on the steep decline in its share price.
While last year was a more challenging period for Enphase, it believes that the bottom is near. During the fourth-quarter conference call, CEO Badri Kothandaraman stated, "We think Q1 could be the bottom quarter." The CEO pointed out that there are early signs of recovery in Europe and that states outside of California should bounce back quickly.
Despite that optimistic view, the company expects revenue to continue sliding. Its first-quarter outlook puts revenue in the range of $260 million to $300 million. However, the company sees an improvement coming in the second quarter, partly powered by a pick-up in demand in Europe.
Is Enphase a buy after last month's surge?
Even with last month's rally, shares of Enphase are still down about 40% over the last year and 60% from its peak in late 2022. That has driven down the company's valuation.
However, it still trades at a rather lofty 37.5 times forward PE ratio. That's a premium compared to the broader market, where the S&P 500 fetches more than 20 times its forward earnings and the Nasdaq 100 trades at more than 30 times future earnings.
While Enphase isn't a bargain these days, its earnings have significant upside potential as market conditions recover in the near term. Meanwhile, it has a long growth runway ahead as it capitalizes on the accelerating demand for solar energy and battery storage. That growth potential makes the stock look like a compelling long-term investment opportunity.
Should you invest $1,000 in Enphase Energy right now?
Before you buy stock in Enphase Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Enphase Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enphase Energy. The Motley Fool has a disclosure policy.
