On Wednesday, Enphase Energy (ENPH) shares, known for producing microinverters that change solar energy into usable electricity, plummeted by 15%, contrary to their strong earnings report from the previous day.
According to analyst predictions, Enphase was expected to make $0.62 per share on revenue of $359.8 million. However, the company surpassed these estimates by earning $0.69 per share and generating $363.2 million in sales. Yet, the stock is currently experiencing a decline. Why might this be?
Enphase’s Q2 earnings
From my perspective, while it appears that Enphase surpassed earnings expectations with a non-GAAP profit of $0.69, the truth is more nuanced. Upon closer inspection, when assessed based on generally accepted accounting principles (GAAP), the company’s actual profit per share was only $0.28.
Certainly, it’s worth noting that Enphase’s GAAP earnings grew significantly from last year, increasing by a whopping 250%. However, the free cash flow for the quarter was just $18.4 million, which is roughly half of the reported GAAP earnings and represents an approximately 84% decrease compared to the same period last year.
Regardless of whether you analyze Enphase’s performance based on GAAP or FCF, it’s clear that the quarter’s reality was far less attractive than the misleading non-GAAP headline figure suggested.
Is Enphase stock a buy?
The situation at Enphase may be worsening, as management has issued a warning about Q3 sales. Specifically, they expect the sales to fall within a range of $330 million to $370 million. At the midpoint ($350 million), this represents a significant decrease compared to Q2’s sales. This also suggests that Enphase might fail to meet analyst predictions for $368 million in Q3 sales.
In essence, Enphase reported significant increases in sales and earnings during the second quarter but recently predicted a decline in sales for the third quarter which may also affect their profitability. Interestingly, the company’s stock is currently valued based on expectations of robust and continuous growth, with an earnings multiple of 32 times.
If that growth isn’t going to happen, it may be time to sell.
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2025-07-24 00:05