ENPH
🏠 Enphase’s business is closely tied to the housing market cycle, as its main products (solar energy optimization systems, batteries) are often installed in new or existing homes.
💰 Despite a significant revenue drop (42% in the last report), the company maintained positive free cash flow ($480M annually) and has a net cash position ($300M), demonstrating resilience.
🔄 The stock’s recovery likely depends on a turnaround in the housing market (using KBH as a proxy indicator) and broader energy/economic cycles.
@bernardodegarcia:
“Okay, quite quickly with Enphase. Enphase sells solar panels, right? To houses. Okay, so to speak, solar panels. Well, yes, it doesn’t sell solar panels; it sells systems for optimizing energy harvesting from solar panels. For you and me, it sells an aggregate for solar panel installation. Let’s leave it there, okay? A converter. It sells other things, batteries, and so on. But the issue is that most of Enphase’s revenue comes from the housing sector. So if we have… I think the time to buy Enphase is when you see… I’m trying to think now because it’s not a market I follow closely, the housing market… KBH, okay? KBH isn’t furniture, eh? No, it’s home building. Perfect. When you see the KBH chart turn around, you’ll probably see the Enphase chart turn around too. Okay? That will be the moment to buy Enphase because KBH, for example, builds new houses. If houses aren’t being built, if houses aren’t constructed because there’s no demand or whatever, then of course, Enphase doesn’t have anywhere to put new products, right? Good thing I only trade Enphase. I think right now it’s not bad because, for me, it’s still a business that continues to have positive free cash flow, okay? And they continue to buy back shares. So, I think it’s a matter of time, but I don’t know what multiples you’re facing right now. It has net cash. It has net cash of $300 million. Its ROIC isn’t wonderful, it’s 3%, but well, that’s how the stock is. This is what I was saying; I mean, the company compared to First Solar, okay? The company doesn’t stop generating free cash flow. And I understand that this is a concern, that revenues falling 42% isn’t news to make anyone happy. But I also tell you, man, a company with $200 million in cash generating $480 million a year. Even despite… look at this. During the last year, revenues fell, and free cash flow fell. And despite falling… last year they fell… this, the free cash flow… the management team stopped spending on Capex, stopped spending on such, and now, as you see, free cash flow is rebounding, and revenues fell 42%. So they have half the business but are capable of extracting, well, from $211 million up to double the free cash flow, okay? And more or less the same is happening with the shares, although here it’s barely visible, okay? But they are repurchasing shares very slowly, okay? They have shares to kill, but there it is. So, well, for me, the most crucial thing about the company is the debt… that it has cash, very correct. And the free cash flow. If you have positive free cash flow, you can handle everything. Now, unless you have tremendous debt and suddenly start to stop having positive free cash flow, okay? If you have positive free cash flow and you have that guarantee, you can handle everything. If you have positive free cash flow and net cash, you’re doing well, okay? Look, obviously, at the revenues, look where the business, in general, is heading, look where the industry is heading, but well, I think sooner or later… What happens is it’s quite cyclical, right? Especially the housing theme, energy theme, Trump, and so on. But I don’t know, with positive free cash flow and positive cash, it doesn’t seem bad to me. It’s not a high-growth business; in fact, it’s shrinking, and it’s a bit… well… it’s a bit, I think, the same situation as Bumble.”
Watch the exact part of the video where @bernardodegarcia talks about Enphase Energy here:
Watch the video on YouTube
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