Enphase Energy (ENPH -14.13%) stock, which makes microinverters for converting solar power to usable electricity, cratered Wednesday, down 15% through 2:50 p.m. ET despite beating on its earnings report last night.
Analysts forecast Enphase would earn $0.62 per share on $359.8 million in sales, and Enphase beat both numbers, earning $0.69 and doing $363.2 million in sales. So why is the stock down?
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Enphase's Q2 earnings
Well for one thing, the news isn't quite as good as the earnings beat makes it sound. Turns out, Enphase's $0.69 profit was non-GAAP (adjusted). When calculated according to generally accepted accounting principles (GAAP), the company actually earned only $0.28 per share.
Granted, while smaller than the non-GAAP numbers, Enphase's GAAP earnings rose substantially year over year -- up 250% in fact. But actual free cash flow for the quarter was only $18.4 million (about half of reported GAAP earnings), and down about 84% year over year.
So whether you evaluate Enphase's results by GAAP or by FCF, either way, the quarter was a whole lot uglier than the non-GAAP headline figure made it seem.
Is Enphase stock a buy?
And things could be getting worse for Enphase. Turning to guidance, management warned that Q3 sales will range from $330 million to $370 million. At the midpoint ($350 million) this implies a big decline from Q2. It also means Enphase will probably miss analyst forecasts for $368 million in Q3 sales.
Long story short, after growing sales and earnings substantially in Q2, Enphase just warned of a sales slowdown in Q3 that will probably impact profits as well. The stock, however, is priced for strong and steady growth at 32 times trailing earnings.
If that growth isn't going to happen, it may be time to sell.
