Since the U.S. presidential administration appears to be open to advances in the sustainability market, California-based solar energy company Enphase Energy (NASDAQ:ENPH) is really starting to look interesting. I’ll admit, however, that ENPH stock isn’t the cheapest stock available.
We’ll definitely delve into the price action of the stock, while also addressing concerns over its high valuation.
Since the share price is elevated, I’ll really need to build a strong argument in order to justify taking a long position.
Perhaps Enphase’s venture into new geographic regions of the world will convince the skeptics and doubters to look beyond the stock’s valuation and envision the company’s long-term growth prospects.
A Closer Look at ENPH Stock
So, I’ll just go ahead and say it. Currently, ENPH stock has a trailing 12-month price-to-earnings ratio of 160.71.
As a value-focused investor, I usually wouldn’t be able to stomach such a high P/E ratio. At the very least, I would advise waiting for the share price to come down.
On the other hand, ENPH stock has already come down somewhat from its peak. Specifically, the stock’s 52-week high price of $229.04 was reached on Jan. 7, 2021.
At the close of the markets on April 12, the stock settled at $151.87. That represents a discount of around 33% compared to the peak price.
Still, I fully understand if you’d rather wait for ENPH stock to fall further. Just be aware that the window of opportunity might not last for too much longer.
A Massive Growth Market
Even before the world found out who the U.S. president would be in 2021, it was evident that the solar market was poised for strong growth.
Thus, last year Goldman Sachs (NYSE:GS) estimated that “Renewable power will become the largest area of spending in the energy industry in 2021,” while modeling a total investment opportunity of up to $16 trillion by 2030.
Furthermore, Goldman Sachs said the European Green Deal called for the region to achieve net zero carbon emissions by 2050. (Hold on to that thought, as we’ll be touching upon Europe again momentarily.)
Amazingly, the renewable energy market is estimated to be worth $2.9 billion by 2027, according to Market Research Future (via InvestorPlace contributor Louis Navellier). This marks an impressive 8.53% compound annual growth rate.
With all of that in mind, it’s reasonable to feel bullish about the renewable market energy today.
And, Enphase Energy fits perfectly into that market. After all, the company’s an early leader in its particular renewable energy niche.
Founded back in March 2006, Enphase is known for having developed the first micro-inverter system in June 2008.
In Enphase Energy’s annual report for 2020, the company freely admits that the majority of its revenue growth that year came from North America.
There’s nothing wrong with that, of course. Yet, it also wouldn’t be a bad thing for Enphase to expand its geographic reach.
And indeed, Enphase is achieving this objective. As the company observes, “we achieved revenue growth in all our international regions, including Australia, Europe, and Latin America,” and “Europe was our fastest growing international region in 2020, with a revenue increase of 32%, compared to 2019.”
Enphase also recently announced that it has expanded its Enphase Installer Network into the Netherlands and Belgium. On top of that, the company expects to introduce the network into more European countries sometime this year.
With this announcement, Dave Ranhoff, chief commercial officer at Enphase Energy, acknowledged that the European solar market is indeed “an important part of our growth strategy.”
The Bottom Line
The bullish thesis for the renewable energy market is undeniable. But, which company should investors focus on in 2021?
I would contend that Enphase Energy is as solid a pick as any. The company’s been a solar-market innovator for years. Plus, its market footprint is considerable.
And as Enphase expands that footprint into Europe, don’t be surprised if ENPH becomes even pricier than it already is.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.