Shares of the solar inverter leader Enphase Energy experienced a significant decline on Tuesday, with a drop of 14.2% by 12:11 PM EDT. This decrease was particularly striking given that the Nasdaq Composite was up by 2.6% at that time.
Enphase Energy not only fell short of analysts’ expectations for the quarter but also provided guidance below estimates for the current second quarter. Additionally, the company’s margins face potential pressure from tariffs later in the year.
In the first quarter, Enphase reported a 35.2% increase in revenue, reaching $356.1 million, along with adjusted non-GAAP earnings per share of $0.68, nearly double the figure from the same quarter the previous year. However, despite this growth, the company was coming off a particularly weak quarter last year, resulting in even higher expectations from analysts, who projected $362 million in revenue and $0.73 earnings per share.
Furthermore, Enphase’s management projected essentially flat revenue for the current quarter, with a range between $340 million and $380 million, where the midpoint falls below the analyst estimates of $376 million.
Tariffs are a major concern for investors, and CEO Badri Kothandaraman pointed out that the second quarter would experience a 2% gross margin headwind due to tariffs. This impact is expected to increase to 6% to 8% in Q3 and Q4, as Enphase has already accumulated some inventory for the current quarter.
Enphase also benefits significantly from the Inflation Reduction Act (IRA) subsidies. Although the company is navigating a challenging macroeconomic environment where consumers may hesitate to make large purchases like solar panels, the IRA offsets some financial burdens. It enhances Enphase’s gross margins by over 10 percentage points and reduces the tax rate by six percentage points. Moreover, the IRA accelerates growth by offering incentives for solar installers who use Enphase’s microinverters and batteries. Despite these benefits, there is uncertainty surrounding the possible future actions of the current Administration and Congress regarding the IRA.
Despite the obstacles, there might be opportunities for long-term investors in residential solar. Currently, Enphase’s stock is 84% below its all-time highs and trades at 18.7 times this year’s earnings estimates and 13.1 times those for 2026. Although risks are present, this represents the lowest valuation for the stock in recent history, and the company remains profitable.
According to a disclosure, neither Billy Duberstein nor his clients hold any positions in the mentioned stocks. The Motley Fool recommends Enphase Energy and has a disclosure policy in place.
