There is no denying that the shift to clean energy solutions will accelerate in the upcoming decade, as the world is transitioning towards renewable energy sources and reducing the carbon footprint. In fact, solar power is already cheaper than coal, gas, and nuclear energy. Further, generating solar power is likely to be the lowest-cost energy solution by 2030.
Several utility companies are shifting towards renewable energy solutions and are seeking out proposals to build infrastructure and invest heavily in this sector to benefit from economies of scale. A report from Fortune Business Insights has forecast the global solar power market size to rise from $163.7 billion in 2019 to $195 billion in 2027, indicating an annual growth rate of 5.9%.
Enphase Energy has crushed the broader markets since IPO
Enphase Energy (ENPH) went public in March 2012 and has since returned a staggering 2,430% in just over nine years. Despite its stellar performance, Enphase stock is down 13% from record highs, providing investors an opportunity to buy the dip.
Enphase develops, manufactures and sells home energy solutions for the solar photovoltaic industry in the U.S. and other international markets. It offers a semiconductor-based microinverter that converts energy at an individual solar modular level while combining the company’s proprietary networking and software tech to provide energy monitoring and control solutions.
In Q1 of 2021, Enphase Energy saw its sales increase by 47% year over year to $301.8 million and ended the quarter with a healthy gross margin of 40.7%. In the second quarter, the company estimated sales between $300 million and $320 million which means top-line might grow 58% at the midpoint guidance.
These growth rates are robust as solar energy companies including Enphase were impacted in 2020 due to the COVID-19 pandemic. Wall Street forecasts Enphase to increase sales by 70% to $1.32 billion in 2021 and by 35.2% to $1.78 billion in 2022. Its earnings are also forecast to rise at an annual rate of 42% in the next five years, supporting the stocks’ high price to sales multiple of 19.2x and price to earnings multiple of 93.5x.
SolarEdge is trading at a lower valuation
While Enphase Energy is valued at a market cap of $25.6 billion, SolarEdge’s (SEDG) market cap is significantly lower at $14.36 billion. However, SolarEdge is also growing at a slower pace compared to Enphase Energy.
SolarEdge stock IPO’ed in May 2015 and has since derived 1,230% in cumulative returns. In Q1 of 2021, SolarEdge experienced a 6% decline year over year as sales stood at $405.5 million. Its net income also fell from $42.2 million to $30 million in this period.
In the second quarter of 2021, SolarEdge sales were forecast between $445 million and $465 million compared to sales of $331 million in the prior-year period. While its gross margin stood at 36.5% in Q1, its forecast between 32% and 34% in Q2 of 2021.
Wall Street expects SolarEdge sales to rise by 30% to $1.9 billion in 2021 and by 25.3% to $2.4 billion in 2022. It means SEDG stock is trading at a forward price to sales multiple of 7.6x and a price to earnings multiple of 58.3. Analysts covering the stock forecast earnings to rise at an annual rate of 20.3% in the next five years.
The final takeaway
Enphase Energy and SolarEdge are part of expanding addressable markets and are growing top-line and profit margins at a solid pace, making them enviable bets for long-term investors. However, between these two stocks, I prefer SolarEdge at this time. SolarEdge has a lower valuation and higher upside potential. Also, SolarEdge stock is currently trading at a discount of 13.9% to consensus price target estimates. Comparatively, Enphase stock is trading 7.5% lower compared to Wall Street analyst estimates.
Want More Great Investing Ideas?
ENPH shares were unchanged in after-hours trading Friday. Year-to-date, ENPH has gained 6.23%, versus a 16.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|ENPH||Get Rating||Get Rating||Get Rating|
|SEDG||Get Rating||Get Rating||Get Rating|