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Here's Why Shares of Enphase Energy Skyrocketed More Than 55% in February

By Scott Levine - Updated Mar 9, 2020 at 5:12PM

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This green energy company's strong fourth-quarter earnings report had investors basking in the sun last month.

What happened

Representing one of the best renewable stocks of not only 2019 but the entire decadeEnphase Energy (ENPH 0.77%) has maintained its upward trajectory in 2020, climbing 21% in January and 55.4% in February, according to data from S&P Global Market Intelligence. Besides a strong Q4 earnings report, investors responded favorably to the company's auspicious outlook for Q1 2020 and a bullish wave of sentiment regarding the stock that resounded on Wall Street.

So what

Booking revenue of $624.3 million in 2019, Enphase Energy reported a 97.5% increase over the $316.2 million the company reported in 2018. But this top line of the income statement was merely the tip of the iceberg in terms of year-over-year improvements. Enphase expanded its gross margin to 35.4% in 2019 from 29.9% in 2018, which helped the company turn a profit, as opposed to incurring a loss. In 2018, for example, the company reported a $0.12 loss per share; however, in 2019, the company generated $1.23 in diluted earnings per share.

A man in a suit stands on a rocket ship.

Image source: Getty Images.

Besides the income statement, investors found a reason to celebrate on the company's cash flow statement. Whereas Enphase reported operating cash flow of $16.1 million in 2018, the company reported, in February, that it generated $139.1 million in cash from operations for 2019. And while capital expenditures were 256% higher in 2019 than in 2018, the company still recognized a notable increase in free cash flow from $12 million in 2018 to $124 million in 2019. Looking ahead, management forecasts Q1 2020 revenue of $200 million to $210 million, exceeding the consensus analyst estimate of $174 million.

Unsurprisingly, the company's impressive performance in 2019 and presumed future growth inspired analysts to revisit their opinions on the stock. For example, Amit Dayal, an analyst with H.C. Wainwright, raised the price target on Enphase Energy to $48 from $36 while maintaining a buy rating, according to Furthermore, Jeffrey Osborne, an analyst at Cowen, reiterated his outperform rating and raised his price target to $49 from $45, while an analyst at Craig-Hallum raised the price target on Enphase's stock to $54 from $31 and kept a buy rating,

Now what

For investors who find the investing thesis behind Enphase Energy compelling but who have been reluctant to pick up shares because of the stock's high valuation, the recent sell-off from fears regarding the novel coronavirus may present an opportunity for investors with a long time horizon. As of this writing, shares of the renewable-energy powerhouse are trading at 50.2 times operating cash flow -- considerably lower than the 84.5 multiple it averaged in 2019.

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Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
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