Enphase (NASDAQ:ENPH) has been one of the most successful solar plays since the industry’s inception. In fact, Enphase is now larger than most solar panel manufacturers despite the fact that the company focuses on the smaller solar components sector. While Enphase is still poised for long-term success, the company is likely to experience some major short-term headwinds.

Stagnating Growth

After years of explosive growth, Enphase has finally started to see a major slowdown. In fact, the company experienced a -13% YoY growth rate in Q3 of 2023 at a revenue of $551M, which is a far cry from the 81% YoY growth rate from Q3 of 2022. While this may seem alarming at first glance, much of this slowdown can be attributed to rising interest rates.

Moreover, the supply-demand shocks caused by COVID are also likely to wear off, which should cause growth to normalize. Interest rates are also unlikely to remain at current levels as the Fed is preparing a significant easing cycle in Q2 of 2024. This means that Enphase could once again see robust growth a few quarters from now.

Stagnating growth rates have caused Enphase shares to plummet over the past year.

Capitalizing on Solar

Solar remains more popular than ever and continues to gain widespread adoption. The rapid technological advancements made in solar panel technology have played a large role in popularizing this burgeoning technology. Enphase has and will likely continue to capitalize on this growth as its success is dependent upon the general solar industry’s health.

While Enphase is not directly involved in solar panel manufacturing, the company has positioned itself to grow with the industry with its solar panel microinverter technology. What’s more, Enphase has transformed itself into a home energy ecosystem company in recent years. This will allow Enphase to see higher margins considering how software-dependent its new energy ecosystem offerings are.

Distributed solar is becoming increasingly viable as a result of improving solar technologies, installation processes, and an aging electric grid infrastructure. As a result, Enphase should continue to see its TAM expand for the foreseeable future. While the company has experienced growth stagnation over the past year, this can be attributed to short-term factors as was previously mentioned.

Enphase’s growing involvement in the home energy ecosystem should allow the company to maintain strong margins moving forward.

Competition Ramping Up

As solar MLPEs have come to dominate the industry, competition has also increased dramatically. SolarEdge (SEDG), in particular, remains Enphase’s main competitor as a dominant player in the space. SolarEdge is also attempting to carve out a space in the home energy space to compete with the likes of Enphase. A growing number of smaller competitors are also making noise in the increasingly competitive industry.

Even as competition ramps up, Enphase has continued to maintain a sizable market presence. In fact, Enphase has fared far better than its competitors over the past few months. SolarEdge has seen its valuation plummet from ~$30B to ~$4.5B in the past two quarters. The market is clearly starting to favor Enphase products despite the growing list of competitive offerings.

Conclusion

Enphase is at the forefront of a booming industry that is still in its early stages. Despite the growth issues impacting the entire solar MLPE sector, Enphase is still doing better than its major competitors. After Enphase’s recent downturn, the company is now a far more attractive investment at its current market capitalization of ~$14.5B and P/E ratio of 27.