Enphase Energy, Inc. (ENPH) is a Trending Stock: Facts You Should Know Before You Bet On It – November 30, 2022

Enphase Energy (ENPH Free Report) was recently named to Zacks.com’s list of Most Searched Stocks. Therefore, you should consider some of the key factors that could influence the stock’s performance in the near future.

Over the past month, shares in this solar technology company have returned +1.3%, compared to a +1.7% change in the Zacks S&P 500 Composite. During that period, the Zacks Solar industry, which includes Enphase Energy, is up 12.2%. The crucial question now is: What could the future direction of the stock be?

Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to earnings estimates

Here at Zacks, we prioritize evaluating the change in forecasting a company’s future earnings over anything else. That’s because we believe the present value of its future earnings streams determines the fair value of its stock.

Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Enphase Energy is expected to report earnings of $1.30 per share for the current quarter, a +78.1% year-over-year change. In the last 30 days, the Zacks consensus estimate has changed by +5.9%.

For the year-to-date, the consensus earnings estimate of $4.35 indicates a +80.5% change from a year ago. In the last 30 days, this estimate has changed by +3.3%.

For the next fiscal year, the consensus earnings estimate of $5.49 shows a +26.2% change from what Enphase Energy was expected to report a year ago. Over the past month, the estimate has changed by +1.8%.

With an impressive, third-party audited track record, our proprietary stock ranking tool – the Zacks Rank – is a more meaningful indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The size of the recent consensus estimate change, along with three other factors related to the earnings estimates, has resulted in a Zacks rank of #2 (Buy) for Enphase Energy.

The chart below shows the development of the company’s 12-month consensus EPS estimate:

12 Month EPS

Sales Growth Forecast

While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.

In the case of Enphase Energy, the consensus revenue estimate of $704.92 million for the current quarter indicates a +70.8% year-over-year change. The estimates of $2.31 billion and $3.11 billion for the current and next fiscal year indicate changes of +66.8% and +35%, respectively.

Latest reported results and surprise history

Enphase Energy reported revenue of $634.71 million for the most recent quarter, a +80.6% year-over-year change. EPS of $1.25 for the same period compared to $0.60 a year ago.

Compared to the Zacks Consensus estimate of $616.5 million, reported earnings represent a surprise of +2.95%. EPS surprise was +16.82%.

The company beat consensus estimates for earnings per share in each of the last four quarters. The company beat consensus sales estimates every time during this period.

valuation

No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Comparing the current values ​​of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values ​​will help determine if the stock is fair valued, overvalued or undervalued. Comparing the company versus its peers using these parameters gives a good sense of the reasonableness of the stock price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C; etc.) is quite helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Enphase Energy is rated D on this front, indicating it is trading at a premium to its peers. Click here to view the values ​​of some of the assessment metrics that led to this grade.

bottom line

The facts discussed here, along with plenty of other information on Zacks.com, could help determine whether or not the Enphase Energy market clamor is worth paying attention to. However, its No. 2 Zacks rank suggests it could outperform the broader market in the near term.

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