Home energy technology company Enphase (NASDAQ: ENPH) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 26.5% year on year to $382.7 million. On top of that, next quarter’s revenue guidance ($360 million at the midpoint) was surprisingly good and 6.4% above what analysts were expecting. Its non-GAAP profit of $0.94 per share was 24.7% above analysts’ consensus estimates.
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Enphase (ENPH) Q4 CY2024 Highlights:
- Revenue: $382.7 million vs analyst estimates of $376.8 million (26.5% year-on-year growth, 1.6% beat)
- Adjusted EPS: $0.94 vs analyst estimates of $0.75 (24.7% beat)
- Adjusted EBITDA: $127.3 million vs analyst estimates of $121.8 million (33.3% margin, 4.5% beat)
- Revenue Guidance for Q1 CY2025 is $360 million at the midpoint, above analyst estimates of $338.4 million
- Operating Margin: 14.3%, up from -11.9% in the same quarter last year
- Free Cash Flow Margin: 41.6%, up from 5.1% in the same quarter last year
- Sales Volumes rose 26% year on year (-67.3% in the same quarter last year)
- Market Capitalization: $8.63 billion
Company Overview
The first company to successfully commercialize the solar micro-inverter, Enphase (NASDAQ: ENPH) manufactures software-driven home energy products.
Renewable Energy
Renewable energy companies are buoyed by the secular trend of green energy that is upending traditional power generation. Those who innovate and evolve with this dynamic market can win share while those who continue to rely on legacy technologies can see diminishing demand, which includes headwinds from increasing regulation against “dirty” energy. Additionally, these companies are at the whim of economic cycles, as interest rates can impact the willingness to invest in renewable energy projects.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Enphase grew its sales at an incredible 16.3% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Enphase’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 24.5% over the last two years. 
We can better understand the company’s revenue dynamics by analyzing its units sold, which reached 2.01 million in the latest quarter. Over the last two years, Enphase’s units sold averaged 15.8% year-on-year declines. Because this number is better than its revenue growth, we can see the company’s average selling price decreased. 
This quarter, Enphase reported robust year-on-year revenue growth of 26.5%, and its $382.7 million of revenue topped Wall Street estimates by 1.6%. Company management is currently guiding for a 36.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 21.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.
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Adjusted Operating Margin
Enphase has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Enphase’s operating margin decreased by 23.3 percentage points over the last five years. Even though its historical margin is high, shareholders will want to see Enphase become more profitable in the future.
In Q4, Enphase generated an operating profit margin of 14.3%, up 26.2 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Enphase’s EPS grew at an astounding 20% compounded annual growth rate over the last five years, higher than its 16.3% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Enphase’s two-year annual EPS declines of 28.4% were bad and lower than its two-year revenue performance.
In Q4, Enphase reported EPS at $0.94, up from $0.54 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Enphase’s full-year EPS of $2.37 to grow 50.3%.
Key Takeaways from Enphase’s Q4 Results
We enjoyed seeing Enphase exceed analysts’ EPS expectations this quarter. We were also glad its revenue guidance for next quarter came in higher than Wall Street’s estimates. On the other hand, its sales volume slightly missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 6% to $70.24 immediately after reporting.
Sure, Enphase had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
