Over the last six months, Enphase’s shares have sunk to $34.01, producing a disappointing 8.3% loss - a stark contrast to the S&P 500’s 5.8% gain. This might have investors contemplating their next move.
Is now the time to buy Enphase, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Enphase Will Underperform?
Even with the cheaper entry price, we're cautious about Enphase. Here are three reasons why ENPH doesn't excite us and a stock we'd rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched 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 performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 19.8% over the last two years.
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Enphase’s margin dropped by 15.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Enphase’s free cash flow margin for the trailing 12 months was 6.5%.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Enphase’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Enphase, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 15× forward P/E (or $34.01 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.
Stocks We Would Buy Instead of Enphase
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
