The world's transition toward cleaner energy sources is a trend here to stay. Several clean-energy technology companies are driving this change, and one such company is leading microinverter manufacturer Enphase Energy (NASDAQ:ENPH).

Enphase's stock price has nearly doubled in a year, reflecting investors' enthusiasm for the company and its prospects. Let's discuss how the company could grow in the next five years and beyond.

Strong revenue growth

Enphase Energy supplies microinverters, an essential component that converts direct current produced by solar panels to alternating current. That's a necessary step before the solar power can be used. The company's microinverters are far more efficient than central inverters that were previously used in residential solar installations. The demand for its products is high, as evident by the company's strong revenue growth.

ENPH Revenue (Quarterly) Chart

ENPH revenue (quarterly) data by YCharts. YOY = year over year.

Rival SolarEdge Technologies (NASDAQ:SEDG) offers another solution for the inefficiencies in the traditional string inverters. Its optimizers are attached to each inverter and provide a lower-cost solution compared to Enphase's microinverters. The two companies' products are comparable, though microinverters have certain benefits over optimizers. But the choice between the two largely depends on customers' preferences.

As the above graphs show, both Enphase and SolarEdge have been growing their revenue handsomely over the years. But in the last five years, Enphase grew its quarterly revenue at a higher average rate than SolarEdge did. In the third quarter, Enphase Energy's revenue grew 97% year over year.

Not only is it growing its revenue, but it is also generating strong gross margins. In the latest quarter, it had a healthy gross profit margin of nearly 40%.

Enphase targets a baseline model of 35% gross margin, 15% operating expenses, and 20% operating income as percentage of its sales. It has largely met or exceeded these targets for the past several quarters.

Young woman looking at solar panels on farm.

Image source: Getty Images.

A long growth runway

Enphase Energy more than quadrupled its revenue in the last five years. If the company continues to grow at this rate, it could reach rival SolarEdge's scale in revenue five years from now.

What's more, Enphase Energy has a very long runway for growth. The U.S. Energy Information Administration projects that the share of renewables in U.S. electricity generation will double to 42% in 2050 from 21% in 2020, with solar becoming the largest source of renewable generation in the U.S. by 2040. Solar companies are the obvious beneficiaries of this expected growth.

New products and markets

In addition to microinverters, Enphase Energy is working on a couple of new products that will help expand its serviceable market. Its residential power storage battery is already selling well. Shipments of its storage systems increased 51% year over year in the third quarter.

Enphase will start shipments of microinverters for small commercial solar installations in the first quarter of next year. Moreover, it is planning to launch an off-grid solar and storage system for developed and emerging markets. The company sees this as a blue-ocean opportunity with an expected serviceable addressable market of $5.2 billion in 2023.

This solar stock looks interesting

The company's high growth is reflected in the valuation of its stock, which is trading at a high forward price-to-earnings (P/E) ratio of 105. It is way higher than SolarEdge's ratio of 67, which is already high.

ENPH EPS Growth Estimate for Current Fiscal Year Chart

ENPH EPS growth estimate for current fiscal year data by YCharts.

As the above graph shows, analysts expect Enphase Energy to continue growing at a higher pace than SolarEdge. Still, the forward price/earnings-to-growth (PEG) ratio of each stock is below 1. Generally, a PEG ratio below 1 is considered a reasonable valuation.

Overall, Enphase Energy looks well positioned to grow in the long term. Industry tailwinds combined with solid operational and financial performance make the company's stock a solid long-term buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.