Enphase Energy (NASDAQ:ENPH) was crashed by the market today. This is due to elevated market uncertainty pressuring the shares of the energy company. The shares dipped 9.27% on the day to $150.51 per share, erasing Enphase’s year-to-date gains in one trading session. The world’s leading supplier of solar and battery microinverters announced today that its batteries now support the most common third-party solar energy string inverters in Europe, enabling ENPH stock to respond to the surging demand for renewable energy solutions in the region.
Today’s market correction overshadowed the company’s announcement. However, Enphase’s strong growth prospects and improving profit margins should support its share in this challenging equity backdrop. After expanding at a robust rate of 78.6% in 2021, revenues are expected to increase 50% to $2.07 billion in 2022. This rapid growth should sustain Enphase’s profitability. Net profits are expected to lift by 70.3% this year to $247 million and by 58.7% to $392 million in 2023. This offers double-digit profit margins of 11.9% and 14.4%, respectively.
More interestingly, with these robust fundamentals, Enphase’s debt is projected to shrink. This bodes well for the firm in a rising interest rate environment. After posting a net debt of $210 million at the end of 2021, Enphase is expected to turn cash positive this year, reaching a net position of $806 million. Meanwhile, the valuation multiples could still bring an adverse effect on ENPH stock. The stretched metrics of the company, which exchanges at a forward enterprise-value-to-EBITDA ratio of 35x and a 2022e price-to-earnings ratio of 88.5x, could bring additional pressure on its stock price.
Short-term pressure might persist on ENPH stock, yet, the momentum remains in a bullish configuration. Besides, renewable demand is expected to grow at a rapid pace in the next years. Additionally, analysts maintain a constructive view on the equity story, offering an average target price of $225.08 per share. This represents a 45.7% upside based on the current price.
On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
