UKRAINE – 07/10/2019: In this photo image the Enphase Energy logo can be seen on a picture … (+)
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Solar stocks have done well over the past year due to low interest rates and the recent US presidential election in which the Democratic Party – viewed as pro-renewable energy – regained a trifecta of government. Two of the best performing stocks were power electronics companies Solar Edge (NASDAQ: SEDG) and Enphase Energy (NASDAQ: ENPH), which rose 2.5x and 7x, respectively, over the past year. Investors are betting that components such as inverters and related power electronics systems, which are less standardized compared to solar modules, could offer higher margins in the long term. Which of the two companies could be a better choice for investors? Check out our full dashboard analysis Enphase Energy vs. SolarEdge Technologies for a detailed breakdown of the financial and valuation metrics of the two companies.
Overview & finances
Enphase is best known for its microinverters, which plug into individual solar panels and convert the direct current generated by the module into the alternating current used by the grid and households. SolarEdge, on the other hand, offers power optimizers that can be connected to individual panels and centralized inverter systems that convert direct current to alternating current.
Enphase revenue has grown from around $ 286 million in 2017 to around $ 624 million in 2019, a growth rate of around 48% per year. SolarEdge's revenues, more than double that of Enphase, grew from about $ 607 million to about $ 1,426 million over the same period, a rate of growth of about 53% per year. However, over the past 12 months, Enphase has seen sales grow 42.1% – much more than 19% at SolarEdge as the company gained market share in the microinverter space. Enphase's operating margin was 15.2% for the last twelve months, up on SolarEdge Technologies' operating margin of 13.2% over the same period. Enphase's margins also trended higher, increasing from 0.8% in 2018 to 15.2% in the last 12 months, while SolarEdge's margins decreased slightly from 15% to 13.2%.
Enphase's high rating and over-reliance on the US are a problem
While Enphase looks attractive because of its stronger growth recently and its margin expansion compared to SolarEdge, its extraordinarily high valuation remains an issue. The company trades with about 37x trailing revenue compared to about 12x with SolarEdge. That's even higher than most tech and high-growth software names. In addition, the company's sales are also very concentrated. In the first nine months of 2020, the US accounted for 83% of its sales, while SolarEdge is more diversified. The US residential solar market, which is a major end market for Enphase, has not grown too fast, and that could hurt the company as well. With that in mind, we believe that SolarEdge trading at a more modest valuation could be the better value for investors.
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