The Enphase (NASDAQ: ENPH) share price has generated outstanding returns for investors over the past two years. Since the beginning of 2020, the stock’s returned more than 500%. Over the past 12 months, shares in the green energy company have returned nearly 60%.
Investors have been buying into the stock as the green technology and renewable energy drive has started to heat up. Hundreds of billions of pounds have flowed into renewable energy technologies over the past 24 months. And the trend is only accelerating.
A desire to build back better after the pandemic is pushing investors and consumers to rethink their energy habits. Rising hydrocarbon prices and supply issues are also driving changes.
Enphase designs and manufactures software-driven home energy solutions. These primarily constitute solar energy solutions and home energy storage. The company is the world’s leading supplier of microinverter-based solar and battery systems.
Put simply, this means the company’s technology allows consumers to generate solar energy and store it at home to be used later. Its latest product, which incorporates “IQ 7 microinverters“, can store 42 kWh of power. That’s enough to power most homes for more than a day.
Demand for this renewable technology is growing. Enphase recorded revenues of $286m for 2017. By 2020, this figure hit $774m. For the quarter ending June 2021, revenues totalled $316m. That suggests the company is on track to generate $1.2bn of revenue over the next 12 months.
Of course, this could be a conservative figure with revenues growing in the double-digits on a year-on-year basis.
The company is rapidly expanding its operations to meet global demand. The organisation is currently moving into Belgium, which it describes as the “fastest-growing solar market in Europe.” It also recently announced expansions into Italy and Brazil.
Enphase share price valuation
Enphase is already profitable, so it has the cash available to expand into these new markets. For the quarter to the end of June, it produced a net income of around $39m. Based on current Wall Street growth estimates, the stock’s trading at a forward price-to-earnings (P/E) multiple of 65.
This multiple looks expensive, especially because competition is only going to grow in the solar market. Vast amounts of money are flowing into the renewable energy sector, and companies are constantly fighting for new business.
Enphase may be the leading the market today, but there’s no guarantee it’ll maintain its market position. There are also question marks over solar’s efficiency compared to other green technologies, such as wind and nuclear.
Despite these risks, I’m excited by the company’s success and its technology. As the world moves away from hydrocarbon energy, I think the demand for its solar products will continue to expand, especially among homeowners. That’s why I’d buy a speculative position for my portfolio today. Despite its recent performance, I don’t think it’s too late to buy the stock.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.