Enphase - short seller Prescience Point


I’m hoping putnid will have some comments on this.

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I’m reading the comments at Seeking Alpha now. I just realized that this is the same short seller with the spotty record that thought Ulta was going down the tubes a couple of years ago. So I’m worried quite a bit less. I reversed my very recent purchase of some calls at a slight loss, but I’ll hang on to my shares.


I’m hoping putnid will have some comments on this.

Glad to oblige, Ed.

The last two days have been dramatic. Enphase shares plunged from $6.62 on Wednesday to a $5.59 close today. That’s almost a 20% decline attributable to a hit piece posted by Prescience Point (PP) a 2-man shop serving one $29M account. I had never heard of the firm before but I’ll remember the name from here on out.

My biggest mistake was underestimating the impact the PP report would have. ENPH shares were being sold briskly before the market opened on Thursday. I took the time to study the analysis before making any decisions. Meanwhile, the share price was falling off a cliff. It didn’t take me long to decide the “analysis” was bunk. In short, PP declared that ENPH’s positive margin growth is simply an artifact of sham accounting. Here’s the major bullet point:

ENPH did not release any game changing new products, restructure its manufacturing operations, or undertake any other initiatives which would have dramatically improved its margin profile.

PP obviously had not followed the company, nor understood (or chose to ignore) the road map ENPH published more than a year ago. Enphase’s resurrection from its death bed was precisely the result of game-changing new products (the IQ series of microinverters), restructuring of manufacturing operations (Badri explained that ENPH has expanded its manufacturing base considerably), and renegotiated terms of its loan agreement such that the company does not have to pay interest on its loan for a full year. PP completely ignored all that. Nor did PP mention the industry shift to AC modules (with the microinverter embedded in the panel straight from the factory). PP failed to note that ENPH leads all competitors in the residential rooftop market.

PP also did not understand (or chose to deceive) why ENPH significantly reduced its reserves for warranty obligations. Simply put, the new generations of microinverters have ridiculously low failure rates. Granted, the early generation inverters proved problematic and nearly destroyed the company. As a consequence, Enphase established the most stringent testing procedures in the industry. The failure rate for the new inverters is practically neglible. Hence, ENPH could (and did) reduce those reserves significantly. The entire section comparing ENPH failure rates against SEDG’s failure rates bordered on the ridiculous and demonstrated total ignorance of industry realities.

The entire discussion regarding recognition of deferred revenues was pure speculation. ENPH enjoys deferred revenues via subscriptions to its “Envoy” system. Envoys are add-ons to modern rooftop systems, constituting the brains of a “smart” home energy system. Envoys deliver system performance updates, collect solar performance data, and enable remote problem-solving. This equipment is the best in the solar business, and is now being installed on ever more systems. What PP did that was so egregious, is to offer an “analysis” based on all sorts of assumptions not supported by ANY facts whatsoever. The fact of the matter is that Enphase does NOT break out sales/revenues attributable to its ancillary products (i.e., Envoys, combiner boxes, cabling and storage batteries). PP made worst case assumptions and ran with them. I hope Enphase provides color on this when it reports Q2 earnings next week. I could go on, but I found the analysis so unprofessional that I see no need to continue.

Here’s where I went wrong: As I’ve mentioned, I’d been selling ENPH shares as the prices skyrocketed ever since this spring. I sold a lot of shares at prices > $7.00 just to keep my portfolio position at approx. 70% (yes, yes, I know that’s a ridiculously large portfolio allocation). The thing is, I didn’t want to sell because I think ENPH’s best days are still coming. Then, after this hit piece came out and the share price plummeted, I began buying back as many of those sold shares as I could. As per usual, I began buying too soon (adherence to the 3-day rule would have been wiser). Buying/selling too soon is my Achilles heel. Long story short, I lost money on many of the repurchased shares (yesterday), although I made money on a significant number of shares I purchased today at less than $5.40.

As matters stand, I’ve rebuilt my ENPH portfolio position to a degree I hadn’t expected to revisit. What can I say? I can’t resist a sale. Enphase reports next week. I expect to profit handsomely, if not next week, then later in the year. The best is yet to come for the company!


If any of your points haven’t been made in the comments at SA, I’d encourage you to post them there.

I would expect Enphase to come up with a strong rebuttal soon, since the effect is so obvious.

I’ve not posted comments on SA…ever. I do, however, read all comments posted on SA, StockTwits, Yahoo boards, the Fool, etc. I find it tiring to rebut foolishness, and there’s a whole lotta foolishness on public boards. My take on the ENPH hit piece was: “Why rebut this?” Why not just take advantage of the price action? In financial matters, the Truth will always win out…eventually. I was able to buy lots of shares on sale. Given the after-market action, I may be able to buy even more shares on sale Monday morning. And I’ll do just that if the opportunity presents itself. That works for me ('cuz I’m a lazy, greedy git).

Enphase will report Q2 earnings after the close 7/31. I fully expect the analysts to ask all the pertinent questions. I fully expect ENPH management to answer those questions. That’ll do it for me.


I wonder if PP already bought back their shorts.

I’m likely to buy more myself. I’m wishing I hadn’t sold back the calls I had just bought.

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Things I noted from the comments section of SA PP article:

1–Raves by everyone that ever installed a panel using Enphase.
2—-They own a ton of patents for their stuff.
3–California has passed a law requiring solar heating in all new homes.
4—-Price is way down for the stock.

Nobody Special