Enphase Or SolarEdge: Which Solar Inverter Stock Should You Pick?
Solar stocks have fared well over the last year or so driven by low-interest rates and the recent U.S. Presidential elections, which saw the Democratic party – which is seen as pro-renewable energy – regaining a government trifecta. Two of the best-performing stocks have been power electronics suppliers Solar Edge (NASDAQ: SEDG) and Enphase Energy (NASDAQ: ENPH), which are up roughly 2.5x and 7x, respectively over the last year. Investors are betting that components such as inverters and related power electronics systems, which are less commoditized compared to solar panels – could offer thicker margins in the long-run. So which of the two companies could be the better pick for investors? See our complete dashboard analysis on Enphase Energy vs. SolarEdge Technologies for a detailed breakdown of the financial and valuation metrics of the two companies.
Overview & Financials
Enphase is best known for its microinverters that connect to individual solar panels and convert the direct current produced by the panel into the alternating current used by the grid and homes. SolarEdge, on the other hand, offers power optimizers that connect to individual panels and centralized inverter systems that convert the DC current to AC.
Enphase Revenues have grown from about $286 million in 2017 to about $624 million in 2019, translating into a growth rate of about 48% each year. SolarEdge’s Revenues, which stand at more than double Enphase’s, have grown from about $607 million to about $1,426 million over the same period, a growth rate of about 53% per year. However, over the last 12 months, Enphase saw revenue rise by 42.1% – much higher than the figure of 19% for SolarEdge, as the company gained market share in the microinverter space. Enphase’s operating margin was 15.2% for the most recent twelve-month period, which is higher than SolarEdge Technologies’s operating margin of 13.2% over the same period. Enphase’s margins have also been trending higher, rising from 0.8% in 2018 to 15.2% over the last 12 months, while SolarEdge’s margins have declined slightly from 15% to 13.2%.
Enphase’s High Valuation, Over-dependence On U.S. Is A Concern
While Enphase’s stronger recent growth and margins expansion make it look attractive compared to SolarEdge, its exceedingly high valuation remains a concern. The company trades about 37x trailing revenue compared to about 12x for SolarEdge. That’s even higher than most technology and high growth software names. Moreover, the company’s Revenues are also very concentrated, with the U.S. accounting for 83% of its revenue during the first 9 months of 2020, compared to SolarEdge which is more diversified. The U.S. residential solar market, which is a key end market for Enphase, hasn’t been growing too quickly and this could also hurt the company. Considering this, we believe that SolarEdge, which trades at a more modest valuation, could be the better value for investors.
MORE FOR YOU
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with around 130% return since 2016, versus about 70% for the S&P 500. Comprising companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams