From June 14, 2019 Newsletter.... ENPHASE ENERGY: (ENPH) $17.51 Up $.43...
ENPH has been a good one that dates back to Nov. 16, 2017 when MDO first recommended the stock at $2.75. We picked it up on a volume scan when it was not only trading 3x's the average daily volume but it was also setting a new 52-week high..... and subscribers should know by now our old motto.... "stocks that set new 52-week highs usually go on to continue to set new highs."
And so here we are 19 months later with the stock up 539% as it continues to set new highs. Today's close was the third time this week ENPH has set a new high. Today's high was not only a new-52-week high but it was also a new all-time high clearing the high of $17.40 set in 2014.
This past Tuesday ENPH jumped 88 cents to $17.07 on 4 million shares. Today's volume was 4.3 million shares or nearly twice the norm. The supplier of solar microinverters announced it will participate in the annual Roth London Conference on June 18-19. The move on Tuesday was also on volume approaching twice the norm, breaking the stock through long-term lateral resistance. For now we see the mid- to high-$20's just around the corner. Last updated in the May 16 newsletter at $14.58 and in a June 7 flash alert at $16.49, ENPH just keeps on keeping on.
Since our initial recommendation, MDO has updated ENPH more than a dozen times. If investors didn't know better, they'd think the name, Enphase Energy, was related to the oil business but this company is related to the solar industry and like many solar related companies, ENPH has never made money until the most recent earnings release when the company reported positive operating income of just over $5 million for Q4 2018, and just under $1.6 million on the year. Quarter revenue was $92 million, totaling just over $316 million on the year. The company ended the year with over $106 million cash on hand, and Q4 gross margins at 30.5%.
Obviously though, the fact that Enphase has fundamentally changed the solar inverter business and is approaching being on 1 million rooftops globally, and has actually stayed in existence for over a decade is proof enough that this company is an absolutely smashing success. The company's success is coming with a stable paycheck these days.
Enphase shipped 257 MW of inverters in 820,000 individual units during Q4, and repeated that they were still running 13-15 weeks behind customer demand, and that the second half of the year would be much more comfortable for the company.
Of particular note is the fact that on January 28, 2019, Enphase repaid in full its high interest bearing senior secured term loan with Tennenbaum Capital Partners. The repayment included a principal amount of approximately $39.5 million plus accrued interest and fees.
THE MOTLEY FOOL SAYS ENPHASE IS A STOCK YOU CAN BUY AND HOLD OVER THE NEXT 20 YEARS.... "Considering this solar stock is trading at a historically expensive valuation relative to book value right now, a long-term mindset might be the only way to rationalize new purchases of shares. But that's not such a bad thing.
The amount of electricity that utility-scale and small-scale solar installations provide in the United States grew 25% year over year in 2018, according to data published by the U.S. Energy Information Administration. That means solar power generated about 2.5% of the country's electricity last year. The EIA expects that figure to grow another 35% by the end of 2020, although most past estimates have actually underestimated solar's growth.
The point is that an annual growth clip in the double digits is expected to continue for solar energy for the foreseeable future -- and that's great news for Enphase Energy. The company engineers and supplies various hardware components that make solar modules work seamlessly with existing grid infrastructure or a new energy storage device. The business finally became profitable in the fourth quarter of 2018 and expects significant growth in the year ahead. In fact, it's growing so quickly that some of its parts suppliers are having trouble keeping up.
Enphase Energy expects first-quarter 2019 revenue to soar 32% from the year-ago period, thanks in part to the ramp-up of a supply contract that will see its microinverters put into solar modules that SunPower manufactures. That deal alone will add about $65 million in annual revenue at a gross margin of 34% once the supply spigot is fully opened at the end of this year. When combined with growing demand from all other customers, it's no surprise the business expects to be comfortably profitable.
That said, fourth-quarter 2018 operating margin was still just half of management's long-term goal, which suggests there's plenty of profit growth ahead for shareholders. Executing on that goal will allow the business to improve its financial flexibility through efforts such as paying down debt, financing growth initiatives from operations, and lowering its earnings-based leverage metrics. That could make Enphase Energy's current $900 million valuation quite the bargain 20 years from now."
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