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Why Shares of Enphase Energy Plummeted 34% in March

By Scott Levine – Apr 5, 2020 at 11:51PM

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Momentum from February couldn't buoy this solar energy powerhouse last month.

What happened

Reversing course from their 55% climb through February, shares of Enphase Energy (ENPH -1.46%) sank 34% in March, according to data from S&P Global Market Intelligence. While the overall sense of foreboding that contributed to the S&P 500's 12.5% decline moved some shareholders to exit their positions, others who are acutely aware of Enphase's operations worried about the impact COVID-19 is having on China and California, in particular.

So what

One source of concern for investors last month stemmed from the company's vulnerability to the spread of COVID-19 through China. In his March letter to shareholders, Enphase's CEO, Badri Kothandaraman, stated that the company's "primary microinverter factory in Fuyong, China, is now at 80% of our line capacity, in line with the typical staffing as workers return from the Chinese New Year shutdown." But as investors -- and Americans in general -- learned in March, things change quickly when it comes to the disease.

Standing on a red line trending down, a man in a suit looks farther down.

Image source: Getty Images.

With President Xi of China essentially shutting down the country to help stop the disease's spread, Enphase's investors worried that the company's factory in China was vulnerable to further additional measures that Xi could decide to enact, which could mean the company may suffer from the inability to meet the growing demand for its microinverters. 

Besides being the site of the company's global headquarters, California is of particular interest to Enphase Energy. In the company's 10-K, for example, the company recognizes that it "derive[s] a significant portion of [its] revenues from California's residential solar market." So when Gov. Gavin Newsom declared a state of emergency in the Golden State on March 4 and a stay-at-home order on March 19, investors took notice, especially since there is no indication that the state of emergency or stay-at-home orders will end anytime soon. Moreover, investors were surely fearful that similar orders will be implemented in additional states, further impeding Enphase's growth prospects.

Now what

The market sell-off has left investors who are interested in renewable energy companies with a variety of compelling opportunities. Although the challenges related to the emergence of COVID-19 are formidable, Enphase Energy remains one of the top solar picks for investors with a long investing horizon.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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