Enphase Explained

Investment Analysis Clubs Saul’s Investing Discussions
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I was asked to provide details about my choice of Enphase as the ONE stock I’d buy over at the NPI board. Thought I’d share my response here as well:

Hello Duma,

I understand your questions regarding Enphase (ENPH). You are certainly not alone, particularly if you’ve not followed Enphase for the last two years. The company skated perilously close (too close for comfort even for me) when it engaged in a price war to maintain market share. Things looked really grim for a while. Consequently, the share price plunged to $0.67 at the low point. Trading in Enphase has been (continues to be) most volatile. That’s why swing trading has been so lucrative for me. Having said all that, I would have walked away from Enphase had the company not laid out a detailed road map to its future.

https://seekingalpha.com/article/4082674-enphase-energy-enph…

Just about a year ago, Enphase made a detailed presentation of where it’s going at an Analyst Day. I can offer the slide deck but, if one doesn’t understand the details, it’ll be of limited use. Sorry about that. I feel I should put together a lengthier overview of past, present and future but it’ll take time and cycling season has begun so…

Anyway, long story short, Enphase laid out a solid plan for establishing itself as the most innovative and game-changing inverter provider in the solar market. The company embarked on a program to develop game-changing microinverters. The process was lengthy and expensive. I believe it was worth it and the results will become evident over the course of this year and next.

The company is now marketing its 6th and 7th generation microvinverters. The 6th generation IQ6/6+ is more efficient and cheaper to produce. We’re already seeing the effects in the financials. IQ7/7+ offers a worldwide SKU (it can now be sold world wide in compliance with all extant laws/requirements. IQ7/7+ is now hitting markets that Enphase couldn’t participate in before. Consequently, it’s the microinverters of choice for panel makers that want to offer AC modules (a most popular option).

The big game changer will be the IQ8/8+…the “always on solar system”. Enphase stands alone in offering a system that works both on- or off-grid! This opens up third world markets in a major way. The IQ8 will be hitting the market in Q4 (ahead of schedule). Plenty of investors/panel makers are salivating over this development.

Enphase will be profitable this year and far more profitable in years to come. It leads all competition in the MLPE (module level power electronics) market. Yeppers, it beats SEDG’s optimizers and all others. In light of all this, it’s ridiculously under-priced.

It’s been a long, strange trip. Corporate management is now completely revamped. Big-hitter investors came charging in. The new products are hitting the market (including revamped batteries). I expect to at least double my money from here within a year, and make far more in the future.

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SolarEdge(SEDG) has maintained a GM over 35% for about 2 years. Operating Margin is 15%+

https://www.gurufocus.com/term/operatingmargin/NAS:SEDG/Oper…

Enphase is improving fast, yet stated goals in your link show the goal is 30% GM and OM of 10%.

HP

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Hello HP,

You are, indeed, correct:

SolarEdge(SEDG) has maintained a GM over 35% for about 2 years. Operating Margin is 15%+

What’s missing is the insight that SEDG’s financial performance is based primarily on the sale of central inverters, not MLPE (optimizers). Central inverters will continue to be dominant in large-scale commercial systems. I’m not that interested in the commercial side of the solar industry. I’m interested in rooftop solar which has a long and strong growth trajectory. I’m also in favor of the “always on” option ENPH will offer for rooftop applications throughout the emerging markets space. SEDG can’t offer that.

I consider SEDG to be a fine company, but its growth prospects are not as bright as ENPH’s. Incidentally, because SEDG is an Israeli company, the Arab world has rejected its products. There’s lots of growth to be had in the sunny desert climes that are turning to solar in a major way.

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Outbid,

So if SolarEdge is not really competition to Enphase ( commercial vs residential) who is?

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Putnid

Sorry Apple autocorrect

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Putnid

At what price do u like Enphase for entry?

Is now a good time to buy?

Rizz

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Hello Jon,

Thanks for elaborating the case for ENPH!

I’m trying to understand more. You said that Enphase specializes in optimizers, and that SEDG primarily sells inverters to the commercial.

I’ve listened to a few SEDG cc’s, and I recall that their business is about 50/50 commercial/residential.

https://www.solaredge.com/us/solutions/residential#/

HP

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Putnid,

I’m sure you know that SEDG also has MLPE’s. What does ENPH do better?

https://news.energysage.com/best-solar-inverters-solaredge-v…

Thanks,

HP

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Good morning HP,

I was busy enjoying life yesterday and did not revisit the boards. I see folks have questions I’ll gladly attempt to answer sometime today. I’ll start with this question:

I’m sure you know that SEDG also has MLPE’s. What does ENPH do better?

Three years ago, the SEDG topology (namely a central inverter coupled with panel-mounted optimizers) was a cheaper option than ENPH’s all-in-one topology (optimized panel-mounted microinverters). The cost differential has become negligible for residential rooftop systems, and is about to swing to ENPH’s favor with the introduction of AC modules by a number of major panel makers. AC modules come with the microinverters pre-installed on the solar panel. This saves considerable time and labor costs (approx. 20%) for the installer. However, the solar panel tariff recently declared by the current administration may negate some of that cost benefit.

Given that costs have come close together, why ENPH over SEDG for rooftops? First and foremost, ENPH converts the panel’s DC output to AC current at the panel. Thereafter, the wiring to the house wiring system is straightforward. SEDG topology results in DC current coursing over the rooftop and into the house before it’s converted to AC current at the central inverter. The wiring is more complicated and most jurisdictions require that licensed electricians do all the wiring incorporating conduit and grounding throughout before the current meets the inverter.

Then there’s the matter of the single point of failure represented by the central inverter. Inverting the current from DC to AC in a large inverter is a demanding operation. Central inverters don’t last as long as microinverters. Microinverters are generally warrantied for 20 years whereas central inverters generally carry 10-year warranties. If the central inverter fails, the whole system goes down. Some folks find that to be a critical difference.

The panel monitoring features offered by the current crop of microinverters is vastly superior to those offered by optimizers. Some folks don’t care about that. Some folks care a great deal (including grid operators).

There’s more I can add, but these basics should suffice. Bear in mind, there are installers who swear by SEDG systems (mostly based on past experience with early generation microinverters) and installers who swear by ENPH systems. Today, ENPH has a slight lead over SEDG in the MLPE market. SEDG, as a central inverter manufacturer, still sells lots of inverters (without the MLPE components). Consequently, one must be careful about making apples-to-oranges comparisons.

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Hello again HP,

I’m trying to understand more. You said that Enphase specializes in optimizers, and that SEDG primarily sells inverters to the commercial.

Let’s clear up a bit of confusion. ENPH sells microinverters (i.e., optimized DC panel current inverted to AC current at the panel). SEDG sells two products: panel-mounted optimizers to optimize DC current at the panel that is then inverted in aggregate at a stand-alone central inverter located somewhere else in/on the house.

ENPH shines in the rooftop solar market. SEDG once did, courtesy of Solar City’s marketing efforts before Solar City went bankrupt (hidden by the Tesla acquisition). During Solar City’s heyday, salespeople literally went door to door extolling their SEDG systems over ENPH systems. Solar City spent over $400 million in this effort. It backfired. The SEDG systems were cheaper for Solar City, but were not quite as favorable for the homeowners LEASING the Solar City systems.

Times have changed. While there are installers who continue to lease solar systems, more homeowners have turned towards ownership options with more favorable financial consequences for the homeowner. I credit SEDG management for being well attuned to the changing market conditions. They turned their attention to serving the commercial market (primarily in Europe), displacing stalwart inverter manufacturers such as Fronius and ABB. Commercial applications aren’t nearly as reliant on optimizing current at the panel. Commercial systems, more often than not, consist of ground-mounted panels located in areas without shading issues. ENPH doesn’t compete in that space.

I advise SEDG investors to watch Huawei’s entry into the commercial space. Huawei is a major Chinese manufacturer that has announced it will provide a broad array of inverters and optimizers, too. Huawei tried to develop microinverters but appears to have abandoned the effort (ENPH’s patent portfolio is significant).

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Hello Rizzz,

So if SolarEdge is not really competition to Enphase ( commercial vs residential) who is?

To be clear, SEDG remains a competitor to ENPH in the residential market, but the ratio is changing. SEDG will always be a bigger player in the commercial market.

When it comes to rooftop systems, particularly consisting of AC modules (pre-installed microinverters), there is only one significant competitor: SunPower Corp. (SPWR). SunPower is an interesting company. Years ago, it spent an enormous sum of money to buy a microinverter competitor to ENPH (the name escapes me at the moment). SPWR didn’t benefit all that much from the transaction. But something amazing happened about a year ago. SPWR began marketing AC modules and sales skyrocketed. That’s why I’m so high on the prospect of AC modules significantly boosting ENPH revenues. Why am I not all that concerned about SPWR as a competitor? Because SPWR has not devoted much money or effort to upgrade the microinverter they bought years ago. ENPH’s current generations of microinverters stand head and shoulders above those offered by SPWR. That is why panel manufacturers are turning to ENPH in partnership deals.

Meanwhile there will always be rooftop systems consisting of central inverters only (the cheapest/poorest option), SEDG topology systems (optimizers plus central inverter) and ENPH wizz-bang microinverter systems relying on ever more AC modules to make life simpler/cheaper for everyone.

Come the unleashing of the IQ8 microinverters, there will be no direct competition.

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Hi Rizzz!

Well,now you’ve done it: At what price do u like Enphase for entry? Is now a good time to buy?

I have to smile, having read so many exhortations to “Just do it!” without much regard for current price or price movement.

As I’ve said a time or three, “Entry/Exit points matter!” Over the decades they’ve had a considerable impact on my portfolio (in both bad and good ways).

Let’s start with a simple stock chart:

https://www.nasdaq.com/symbol/enph/interactive-chart

This chart includes the 50-day moving average (moving steadily up). The RSI (fairly neutral, neither overbought nor oversold). The MACD (fairly neutral, shares not being significantly accumulated nor distributed). And On-Balance Volume (modest profit-taking occurring). The chart is fairly neutral at present. The best time to buy was last June, when the share price was < $1. The easy 500+% gain came and went. Now? As I stated, the trading is fairly neutral. I had sold quite a few shares when the share price climbed to $5+. I bought back all those shares recently at ~ $4.20. It was a good swing trade for me.

Would I recommend buying now? That’s what I did for my hunnybunny. Like me, she’s retired and lives off the proceeds from her portfolio. Last summer, I convinced her to buy shares at $1. She bought quite a few. Please note, the sign of high conviction is to recommend a stock purchase to your lover. The stakes are truly high. She’s rather pleased with her investment to date. She asked if she should buy more. I told her I thought $4 was a decent price, so she bought more.

Here’s a site I visit anytime I consider making a trade:

https://www.tradingview.com/symbols/NASDAQ-ENPH/technicals/

I like it because I’m visually oriented more than numbers oriented but, as you can see, the site offers numbers galore including a variety of well-accepted support and resistance points. I find this site (and many other technical analysis sites helpful).

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Thx, Putnid, this is fun.

I suppose that ENPH is more of a Saul stock, growing very fast, doubling since February. SEDG is up about 60% since then, too. The bubble of CA rooftop solar hurt the industry and soured investors on this board. Fortunately, I entered SEDG 18 months ago, and have listened carefully to their cc’s since. I’m impressed with CEO, Guy Sella. Management is straightforward, does not exaggerate, believes in substantial R&D, and aims to lower cost of product by 10%/year. SEDG has 10%+ cash and PE of about 20.
Since ENPH was absent that, to my untrained eye, they were not as good a choice.

I will ask a bright engineering grad,(my son’s friend)as another source.

…looking seriously to opening a position in ENPH because of your presentation.

HP

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With a solar system, is there also some uninverted DC fed into the house? These days, there are at least two things that use relatively low-voltage DC - USB charging ports and LED light fixtures that haven’t been retrofitted for an AC system.

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With a solar system, is there also some uninverted DC fed into the house? - EdGrey

I’m not aware of any such applications. A rooftop solar system, regardless of topology, ultimately delivers AC current to the home’s electric system. That’s why devices that must necessarily use DC current for a given purpose (such as charging lithium batteries) has a rectifier built into the charger. Here’s an explanatory article you might enjoy:

https://pluginamerica.org/ac-versus-dc-charging-what-differe…

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Your comments were pretty convincing. I had been wondering about Solar Edge vs. Enphase, but you cleared that up pretty well.

I just put 0.3% of my portfolio into Enphase at about $4.42 a share. It’s down almost 4% from yesterday, so I figured it was a pretty decent opportunity.

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As of a minute ago, I’m up $0.03 a share. I’m feeling wealthier, though with my smallish stake, that bump might not cover the $7 commission I paid Vanguard. :slight_smile:

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Hello Ed,

Given that Enphase constitutes almost 65% of my portfolio (yep, I bought when the opportunity presented itself), I’m gonna be following developments carefully. Please remember, ENPH is quite volatile. Not that long ago, it moved up and down in almost daily 20% increments. For a small stake it’s best to ignore the noise. The quarterly earnings reports are the key. I fully expect escalating good news each quarter. The Q2 report should address broader IQ7 penetration into diverse European markets. I expect further margin improvements. The Q3 report should address the growing number of partnership agreements to produce AC modules. I expect to see notable top line growth (hence profitability). Q4 will be the start of the IQ8 era. That’ll be quite the game-changer with improved revenue growth and profitability. I had not mentioned this earlier, but Enphase entered into a partnership agreement with Waaree Energies, India’s top panel manufacturer. Although the agreement was forged months ago, Waaree wants to incorporate the IQ8/8+ microinverters in its panels (the grid agnostic feature is of critical importance in India). This one partnership alone can make a dramatic difference in ENPH’s growth and profitability. I intend to hold ENPH for the entire year to see how all this plays out.

https://enphase.com/en-us/blog/why-enphase-made-india

Enphase Microinverters have been engineered and tested to function in the harshest environments expected in a PV installation. As you read this, we have systems operating in some of the harshest conditions on the planet, from Saudi Arabia to Antarctica.

In string inverter systems, module mismatch leads to system-wide inefficiencies because they are limited to the output of the weakest module in the chain. With Enphase’s distributed architecture, modules operate independently so that no single module can drag down other modules. Soiling caused by debris or, as is India’s challenge, dust and air pollution on one module does not affect the others. In addition, with the Enphase Microinverter System, there is no need to connect modules and inverters with long runs of DC cabling, where energy is lost.

Even though ENPH has been around for a while, its story has really just begun.

May we all live long and prosper!

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With all due respect, Putnid, solar tech is not software Cloud tech.

Granted, ENPH is operating from a small MC, but SEDG was at their level just 1.5 yrs ago.
Be careful about the competition, SEDG is pretty tough.

HP

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So Solar Edge could get more into residential?

At any rate, I’m enjoying the 13% increase today. I realize it’s not the same world as “sticky” cloud software subscriptions, but the runway looks good for now. I may even end up being a customer. I know someone who may end up being a customer.