ENPH or SEDG: Which Stock Is More Attractively Valued?



Enphase Energy (ENPH) stock has had a decent run recently after some long-term softness. The stock has been weak since late August and couldn’t maintain any significant gains. ENPH stock has fallen more than 30% since hitting its all-time high of $35.40 on August 27. It is still up more than 410% so far this year. Peer solar inverter maker SolarEdge Technologies (SEDG) is up almost 140% year-to-date (or YTD).

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ENPH versus SEDG: Price-to-earnings valuation

Let’s take a look at the valuations of Enphase Energy and SolarEdge Technologies and see whether there is any steam left in these top-rallied solar stocks. Enphase Energy stock is trading 24x its earnings per share of $0.98 for the next 12 months. This looks reasonable for a growth stock.

Peer SolarEdge is trading 17x its forward earnings. So, SolarEdge stock looks relatively attractively valued compared to Enphase Energy stock.

Year-over-year (or YoY), Enphase’s EPS could increase by 12% in 2020 and 23% in 2021. At the same time, SolarEdge’s EPS could increase by 17% and 12% in 2020 and 2021 YoY, respectively, based on analysts’ estimates.

Price-to-sales valuation

Using the price-to-earnings valuation would be less suitable for these companies. Instead, using the price-to-sales ratio is a more appropriate comparison, as the companies are still in the growth phase. The price-to-sales ratio indicates the amount the investors are ready to pay per dollar of a company’s sales. This ratio is calculated as the company’s market capitalization divided by its total annual sales.

Enphase Energy’s forward price-to-sales ratio is around 3.8x. We have estimated the company’s 2020 sales to be around $778 million. SolarEdge’s price-to-sales ratio is around 2.4x. Based on analyst consensus estimates, the company could report sales of $1.66 billion in 2020.

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Both ENPH and SEDG have reported solid revenue growth so far this year. For the nine months ended September 30, Enphase Energy’s revenues increased 85% YoY. In the same period, SolarEdge’s total revenue grew around 50% YoY to approximately $1 billion. For more, please read Solar Stocks: Analyzing the Top Gainers of 2019.

The Invesco Solar ETF (TAN) is up more than 55% YTD. Collectively, ENPH and SEDG stocks form more than 16% of TAN.

In the last few years, the Trump administration’s tariffs on imported solar panels has hit the US solar industry. These tariffs could remain in place through 2021 and will likely cause significant damage to the industry in terms of investments and jobs. To learn more about this issue, please read Will the US Solar Industry Get Trump’s Support?

ENPH versus SEDG: Analysts’ price targets

Based on analysts’ estimates, Enphase Energy stock has a mean target price of $30.70 against its current market price of $24. This indicates a potential upside of 28% for the next 12 months.

Among the 11 analysts covering ENPH, eight recommended the stock as a “buy,” and three recommend it as a “strong buy.” Plus, three analysts rated the stock as a “hold,” and three recommended a “sell” on the stock.

SolarEdge stock has an estimated upside of 12% against its current market price of $84.80. Analysts gave it a mean target price of $92.80.

Of the 13 analysts tracking SEDG, seven recommended it as a “buy,” and two recommended a “strong buy.” Three analysts recommended a “hold,” and one recommended a “sell.” Needham & Company started covering SEDG with a “buy” rating last week and gave it a price target of $102.


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