Enphase (ENPH)

Home energy technology company Enphase (NASDAQ:ENPH) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 7.8% year on year to $410.4 million. On the other hand, next quarter’s revenue guidance of $330 million was less impressive, coming in 11.9% below analysts’ estimates. Its non-GAAP profit of $0.90 per share was 37.2% above analysts’ consensus estimates.

Company Overview

The first company to successfully commercialize the solar micro-inverter, Enphase (NASDAQ:ENPH) manufactures software-driven home energy products.

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.

Competitors in the solar industry include SunPower (NASDAQ:SPWR), Sunnova Energy (NYSE:NOVA), and SolarEdge (NASDAQ:SEDG).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Enphase’s 16% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Enphase’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 25.3% over the last two years. Enphase isn’t alone in its struggles as the Renewable Energy industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can dig further into the company’s revenue dynamics by analyzing its number of units sold, which reached 1.77 million in the latest quarter. Over the last two years, Enphase’s units sold averaged 27.4% year-on-year declines. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Enphase reported year-on-year revenue growth of 7.8%, and its $410.4 million of revenue exceeded Wall Street’s estimates by 12%. Company management is currently guiding for a 13.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 12.4% over the next 12 months. Although this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Enphase’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 41% gross margin over the last five years. Said differently, roughly $40.98 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, Enphase’s gross profit margin was 47.8%, up 1 percentage points year on year. On a wider time horizon, however, Enphase’s full-year margin has been trending down over the past 12 months, decreasing by 5.9 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Enphase has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%. 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 6.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Enphase generated an operating margin profit margin of 16.1%, up 3 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Enphase’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 16% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Enphase’s earnings quality to better understand the drivers of its performance. A five-year view shows that Enphase has repurchased its stock, shrinking its share count by 6.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Enphase, its two-year annual EPS declines of 22.7% mark a reversal from its (seemingly) healthy five-year trend. We hope Enphase can return to earnings growth in the future.

In Q3, Enphase reported adjusted EPS of $0.90, up from $0.65 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 $3.21 to shrink by 23.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Enphase has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 25.2% over the last five years.

Taking a step back, we can see that Enphase’s margin dropped by 9.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Enphase’s free cash flow clocked in at $5.89 million in Q3, equivalent to a 1.4% margin. The company’s cash profitability regressed as it was 41 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Enphase hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 32.8%, splendid for an industrials business.

Companies with more cash than debt have lower bankruptcy risk.

Enphase is a profitable, well-capitalized company with $1.48 billion of cash and $1.20 billion of debt on its balance sheet. This $274.4 million net cash position is 5.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see Enphase beat analysts’ revenue, EPS, and EBITDA expectations by a wide margin this quarter. On the other hand, its revenue guidance for next quarter missed by a long shot. The market seemed to be hoping for more, and the stock traded down 8.1% to $33.79 immediately following the results.

Updated: December 4, 2025 at 10:58 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Enphase.

Enphase’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining operating margin shows the business has become less efficient.

Enphase’s P/E ratio based on the next 12 months is 14.3x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $38.47 on the company (compared to the current share price of $30.77).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.