Shares of solar inverter manufacturer Enphase Energy (ENPH 3.80%) rallied 26.9% in November, according to data from S&P Global Market Intelligence.
Of course, November's gains may be cold comfort to Enphase investors who have owned the stock since the beginning of the year. Even after November's big gains, the stock is down nearly 60% for 2023.
With the benefit of a lower valuation, Enphase was able to regain some ground in November as inflation came down, and as its CEO purchased a significant number of shares on the open market.
Interest rates are key for solar deployments
Along with regulatory changes, the residential solar market has been hampered by rising interest rates this year. While the Federal Reserve has hiked the federal funds rate very quickly, long-term rates actually rocketed higher through the summer and into mid-October. Residential solar deployments are big-ticket items that are usually financed, so a big change in interest rates can greatly affect demand.
Enphase also posted an earnings miss and even worse-than-feared guidance at the end of October, as distributors looked to de-stock their inventory on weak demand. So, the stock was entering November from a pretty low valuation -- the lowest since 2020.
That paved the way for a good news bounce, and investors got that with October's inflation reports. In mid-November, both the Consumer Price Index (CPI) and Producer Price Index (PPI) data for October came in softer than expected. Those soft readings seemed to assure investors that the Fed is likely done with rate hikes, and may even move to rate cuts soon. That lifted all highly interest-rate-sensitive stocks, especially in clean energy.
While the decelerating inflation was a key reason behind the month's move, there were also some company-specific factors as well. For one, the company's CEO Badrinarayanan Kothandaraman bought 1,118 shares of Enphase on the open market on Nov. 16, the day after the PPI report, at just over $90 per share. While that amount, which totaled a little over $100,000, pales in comparison to Kothandaraman's 1.27 million share holding, it was still a positive show of confidence from the CEO.
Enphase, a leader in the field of microinverters, is also pursuing growth via geographical expansion and product innovation. Although its core market is in residential microinverters, in November Enphase also began rolling out its latest IQ8 microinverters, designed for for high-powered modules and small-scale commercial applications in North America, Austria, Mexico, and Brazil. New product introductions could also be a catalyst for future growth.
Has Enphase bottomed?
With November's bounce and the CEO buying shares, it may be the case that the stock's 70% plunge from its late-2022 highs may be over.
However, Enphase also doesn't look especially cheap, at around 27 times trailing earnings -- and those earnings are likely to decline over the next couple quarters ahead, at least.
On the other hand, it's possible Enphase will never garner a low multiple, at least anytime soon, as it's a technology and profit leader in an industry thought to have strong long-term growth prospects -- that being residential solar. So, it very well could be that Enphase has bottomed.
Still, the ultimate addressable market of residential solar is somewhat unknown, and I wouldn't be rushing to make that call. So, it will be up to each investor to decide if Enphase is worth jumping in for the long haul at this level.
Either way, investors should prepare for more potential downside even if they choose to buy some stock here.
