Key Points
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Enphase Energy saw its strongest demand in over two years, but there was a catch.
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A tax credit expiration pulled solar system installations forward.
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Guidance still calls for a drop in sales in the current quarter versus last year.
Shares of solar energy technology company Enphase Energy (NASDAQ: ENPH) are soaring today. Enphase stock had been on a gradual, but steady descent over the past three years, dropping 77% in that time. But an encouraging earnings report and strong guidance have investors seemingly calling a bottom in the stock.
Shares rocketed as much as 42% this morning, and remained up by 37% as of 11:30 a.m. ET.
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Solar headwinds remain
Enphase said demand for its products was at its “highest level in more than two years.” The company also guided investors to expect revenue of between $270 million and $300 million in the current quarter. Wall Street analysts were predicting sales below the low end of that forecast. That helps explain today’s market reaction.
Yet headwinds remain for the company. Management admitted that the strong demand seen in the fourth quarter was mainly driven by consumers increasing solar system installations ahead of the expiration of a tax credit.
While revenue guidance for the first quarter exceeded expectations, it’s important to note that even the high end of that forecast would represent a year-over-year sales drop of nearly 16%. Investing in solar stocks like Enphase remains risky. While the share decline seen over the last year may now have stabilized, growth in the underlying business still doesn’t appear to be at hand. Investors may want to wait until that growth returns before taking a position.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.