What happened

Solar power and energy storage system provider Enphase Energy (ENPH -1.72%) reported its first-quarter 2021 earnings on Tuesday, and demand continues to outpace supply for the company's products. But shares were down sharply today as investors focused on the stock's high valuation and the supply constraints affecting the business. As of 10:45 a.m. EDT, Enphase shares are down over 14%. 

So what

Today's price drop should be put in context, however, as the stock has gained about 470% since the start of 2020. For the first quarter of 2021, Enphase continued to report strong business results. Revenue of $301.8 million was 47% higher than the year-ago period, and gross profit margin was a solid 40.7%. But the outlook for next quarter and the balance of the year was tempered by supply constraints from semiconductor component suppliers. 

solar panel worker on roof assessing data on computer

Image source: Getty Images.

Now what

In the first-quarter conference call, Enphase president and CEO Badri Kothandaraman told investors Enphase has qualified new suppliers to help ease the supply chain tightness, but the ramp-up for additional supply has been slower than anticipated. He added, "We expect these component constraints to remain for the rest of the year." 

Overall, investors should be happy with the underlying business strength. The supply constraints will eventually be worked out, and customer demand is what will continue to drive results. But shares surged over the past year as investors bid up many renewable energy names. Pullbacks in the stock price are to be expected as the business grows into its lofty valuation.