The share of solar energy in the U.S. power generation is expected to rise to 20% by 2050 from just 3% in 2020. That huge increase in solar power generation should benefit manufacturers of solar products.
Microinverter manufacturer Enphase Energy (ENPH -2.46%) looks extremely well-placed to benefit from the expected growth in solar power generation. Let's discuss how Enphase Energy stock may fare in 2022 and beyond.
Enphase Energy's strong growth
Enphase Energy has been growing its revenue and cash from operations consistently over the years. Between 2017 and 2021, the company's revenue grew at a compound annual growth rate of 48%. In the third quarter, Enphase Energy's revenue grew 97% year over year.
ENPH Revenue (TTM) data by YCharts
Enphase Energy is focusing both on organic growth and acquisitions to fuel growth. While investing in organic growth, the company focuses on keeping its capital and operational expenses in check. For example, a globally diversified supply chain allows Enphase to procure materials at competitive rates, as it does not need to rely on a single supplier or geography.
This focus on costs likely allowed Enphase to generate stronger margins in the last couple of years compared to its rival SolarEdge Technologies. Enphase has a baseline financial model in which it aims to generate a 35% gross margin and 20% operating margin as a percentage of its sales. It has managed to hit these targets consistently over the last three years.
Moreover, Enphase focuses on continuously improving its offerings. It has launched a new version of its microinverter, which the company expects will allow it to increase its revenue per customer. Enphase plans to continue improving the product in the coming years.
Image source: Getty Images.
Recent acquisitions
In January 2022, Enphase acquired ClipperCreek, a manufacturer of electric vehicle (EV) chargers. ClipperCreek has sold more than 110,000 chargers since 2006. Enphase Energy expects to sell EV charging solutions to its customers along with solar and battery products, adding to its revenue per customer. The company anticipates a serviceable addressable market of $6 billion for EV chargers by 2025.
In December, Enphase Energy completed the acquisition of 365 Pronto, which provides a platform where Enphase's installers can find service providers easily to better serve the company's customers. Customer service is an integral part of Enphase's overall offerings, and enhanced customer experience will go a long way in boosting the company's growth.
Overall, Enphase Energy has not only been growing rapidly, but it also seems to be well-placed to continue growing in the coming years.
Is Enphase Energy stock a buy?
As of this writing, Enphase Energy stock has fallen more than 25% in January. The recent fall has made Enphase stock's valuation more attractive.
ENPH PE Ratio (Forward 1y) data by YCharts
Enphase Energy stock is trading at a forward price-to-earnings (P/E) ratio of around 34, much lower than it has been trading for the entire last year. The stock's average forward P/E ratio in the last year is around 57.
Based on the forward P/E-to-growth (PEG) ratio, Enphase Energy stock looks attractive. The PEG ratio compares a stock's P/E ratio to its projected earnings growth. With all else equal, stocks of companies that are growing their earnings faster should trade at a higher P/E ratio. Generally, a PEG ratio below 1 indicates that a stock is fairly valued considering its expected earnings growth.
Notably, Enphase Energy stock may remain volatile in the near term due to factors such as changes in governmental incentives for solar or rising interest rates. However, the expected long-term growth in solar generation means that solar companies have a long runway for growth. Buying on dips, like the current one, could be a great way to build a position in this stock for the long term.
