US Solar Stocks are on a bull run

Solar stocks have been rising rapidly in the recent months along with the general stock market and improving industry fundamentals. The buyout of Power-One (PWER) for a substantial premium by European giant ABB has improved the sentiment as well. While the Chinese solar stocks are still under pressure due to the bon defaults by Suntech (STP) and LDK Solar (LDK), US solar companies like First Solar (FSLR), Solar City (SCTY) and Enphase (ENPH) have been on a strong bull run in 2013. Recent results by US companies like Sunpower (SPWR) has also been received well by investors who may be investing in hope that a bottom has finally been formed in the solar sector.

Enphase Energy grabbing market share

Finding decent, high quality companies in the volatile solar industry is a tough job given that the competitive dynamics can change quite rapidly. While I like some of the stocks like GT Advanced Technologies (GTAT), this stock has not done that well because the solar equipment industry has seen its order go down by almost 80-90%. Another stock which I like is Enphase Energy (ENPH). This company is the pioneer of the “microinverter” in the solar industry. The company has been reporting improve sales almost every quarter with impressive margins. This stock has been making new highs as investors become convinced about its growth story. Despite severe competition in the solar inverter market, Enphase has seen its market share grow. The company also has unique technology which makes it very attractive for a bigger player. The solar inverter industry is currently undergoing consolidation with ABB buying Power One and AEIS buying Refusol. It makes great sense for one of the bigger solar inverter companies like SMA Solar or Kaco Energy to buy Enphase. Even bigger electrical conglomerates like Siemens (SI) or General Electric (GE) could also look to strengthen their solar inverter portfolio by buying Enphase Energy.

Read about List of Major Solar Inverter Manufacturers on GWI.

Enphase Risks

Enphase Energy faces risks from existing solar inverter companies entering the microinverter category. The company also faces some risks from global solar trade wars which are making it difficult for companies to invest and plan for the future. Enphase’s small size also makes it vulnerable to industry and company specific problems.

Enphase Energy Fundamentals

Enphase is currently trading at ~$7.4 which gives it a market capitalization of around $300 million dollars. The stock has gone up by more than 300% in the last 6 months after forming an all time low of $2 during November 2012. The stock is not expensive with a P/S of 1.1x and a P/B of 5.6x. The forward P/E of ~16x is almost equal to that of the broader market despite ENPH having a strong growth potential. The company’s sales have more than tripled in the last three years and continue to grow.

Summary

The solar industry is growing at a rapid pace despite the problems faced by solar companies. The solar panel price crash has brought solar energy to grid parity in many parts of the world. Forecasters expect that solar demand will grow to more than 50 GW by 2016 from around 30 GW now. Many solar companies are going bankrupt which will help improve the margins of the surviving solar companies. Enphase Energy is growing rapidly and currently has only a ~4% market share of the global solar inverter market. The company’s innovative technology, rapid growth, better than industry margins and good management makes it a good buy in my book.