Early Tuesday morning before the opening bell, global solar technology firm Enphase Energy (NASDAQ:ENPH) announced an expansion of its product line in Brazil. While the news has attracted attention across social media, it’s failing to spark positive momentum in ENPH stock today. Instead, shares are slipping around 6% as of this writing, likely due to an overheated valuation premium.
According to a press release, installers of Enphase products in Brasilia — the federal capital of Brazil — have witnessed a “significant increase in deployments of residential solar energy systems powered by IQ7AM™ Microinverters.” Enphase’s website clarifies that a microinverter is a device used in photovoltaics that converts direct current (DC) to alternating current (AC).
Based on field reports, Enphase end-users have strong confidence in Enphase systems due to “a reduced need for ongoing maintenance.” What’s more, Enphase delivers a highly customizable design that allows scalability for customers as their needs change.
Naturally, management is expressing optimism for its expansionary ambitions in Brazil. “At Enphase, we take great pride in our collaboration with installers across Brasilia to deploy industry-leading solar energy systems,” said Marco Krapels, Enphase Vice President of International Sales.
Despite the positive implications, ENPH stock is falling sharply right now. Apparently, investors are skeptical that there’s still gas left in the tank for the stock.
ENPH Stock Craters Amid a Widened Footprint
On paper, the wider integration of renewable energy systems should be a boon for ENPH stock and the underlying industry. From government agencies to private advocacy organizations, experts from around the world are consistently affirming the consequences of climate change. Nevertheless, Enphase is failing to materialize positive momentum in its equity shares today.
Against the bigger picture, Brazil has recently struggled to gain traction with renewable energy investments. Last year, consultancy firm EY noted that the nation fell four positions in its Renewable Energy Country Attractiveness Index. Brazil subsequently ranked number 13.
To be fair, Brazil is still a leader in Latin America when it comes to installed capacity of renewable energy. However, the majority of this capacity centers around hydropower. For solar, exchange rates pose a challenge for many companies, as China manufactures most of the underlying panels.
Regarding ENPH specifically, the stock is also simply overvalued. Using data from Gurufocus, shares trade at a forward price-to-earnings multiple of 32. In contrast, the semiconductor industry has a median forward multiple of 25.22 (although it is hard to call Enphase a pure-play semiconductor firm). Stacked against competing firms, Enphase’s P/E ranks worse than 62.12% according to Gurufocus.
Why It Matters
Despite Tuesday’s rough outing, analysts still peg ENPH stock a consensus “strong buy.” This assessment breaks down as 20 “buy” ratings, three “hold” ratings and one “sell” rating. The average price target for shares lands at $258.61, implying roughly 51% upside potential.
On the date of publication, Josh Enomoto did not hold (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.
