Many alternative energy stocks have been enjoying impressive gains in 2020. But among the best is Enphase Energy (NASDAQ:ENPH). ENPH stock has gained 75% since the start of the year, and it hit all-time highs in May. With that in mind, should investors buy, short or avoid Enphase here?
Let’s start by taking a look at what all the fuss is about. Growth traders will point to Enphase’s profitability, as well as its superior earnings and sales trends. And why not use those to support a bullish argument? Unfortunately for those traders, Enphase’s bullish narrative is now starting to look a bit like Swiss cheese.
Short-seller Prescience Point Capital Management issued a damning report on ENPH, stating the company committed financial shenanigans dating as far back as 2017. PPCM contends its indictment will result in a “sham turnaround story meeting its inevitable, dire fate.”
It’s not the outfit’s first attack on Enphase. PPCM previously accused Enphase of improper deferred revenue accounting in 2018. Those allegations didn’t prove nearly as disruptive — the more recent report sent ENPH stock down 26%. But ENPH was also firmly attached to a much smaller company with less traction among investors back in 2018.
The bulls have been fighting back after the report’s initial fallout. JPMorgan, S&P Global Market Intelligence and Roth Capital Partners have entered the ring with counter jabs at the short seller’s “specious” and “nonsensical” accusations. To their credit, ENPH did recoup nearly 70% of the report-driven losses over the next two sessions.
ENPH Stock Monthly Price Chart
So, who are we to believe when it comes to Enphase Energy? I’m willing to believe that the bullish trend is still intact. That means this correction allows investors to buy shares at a more reasonable price.
Technically, the selloff found support between ENPH’s lifetime 38% and 50% retracement levels and its modest breach of its 62% Fibonacci level tied to the March coronavirus bottom. Shares are also on the cusp of signaling a bullish stochastics crossover just above oversold territory. All told, Enphase is shaping up as a compelling opportunity to pick up shares at the intersection of where growth meets value.
My suggestion today is to monitor shares for buying. If stochastics crosses over and ENPH continues to hold the steeper monthly trend line tied to last week’s low, a purchase looks to be in order. That’s enough evidence for buying into healthy weakness without catching a falling knife.
Bottom line, all stocks correct. Even the best companies like Microsoft (NASDAQ:MSFT) or Amazon (NASDAQ:AMZN) have periods where shares come under enough pressure to raise more than just an eyebrow. It happens all the time. Quite often and just as quickly, the bullish trend reasserts itself. That’s what I’m banking on in ENPH.
A word of caution though: As an already volatile growth stock, I’d also strongly advise Enphase Energy investors use some type of limited-risk strategy only possible with ENPH options.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
