To The Moon

Enphase Energy, Inc. (NASDAQ:ENPH$Enphase Energy(ENPH)$ ) reported adouble beaton its top and bottom line and even guided above the previous Wall Street analysts' consensus estimates at its recentFQ4 earningsrelease.

Yet, market operators are unimpressed, as ENPH failed torally further, consolidating at levels close to its January lows.

We have cautioned investors inseveral articlesthat the bubble in ENPH would pop, even though it took a while to arrive. However, that's just how the market works, drawing in unsuspecting investors chasing ENPH to the sky.

Earlier investors in ENPH are likely not troubled, with ENPH notching a 10Y total return CAGR of nearly 50%. However, the same cannot be said for investors who chased its upward momentum at the end of 2022, as ENPH collapsed almost 40% from its December highs.

With ENPH closing inagainst its long-term moving average support level, we believe a near-term consolidation should follow.

With that in mind, investors are likely concerned about why the market wasn't pleased with Enphase's operating performance, despite reporting a solid FY22 release. Because management's guidance was cautious!

We articulated in our previous article that "ENPH's growth premiumimplies that it cannot afford to suffer mishaps against its execution."

Keen investors who parsedmanagement's commentaryin its earnings call would have gleaned several critical quotes suggesting lowered visibility in FY23.

Accordingly, management highlighted they remain "cautiously optimistic," even though they expect US revenue growth to slow more than expected in Q1 due to macroeconomic and more "pronounced" seasonality factors.

Despite that, it mitigated its commentary by accentuating that "installers and distributor partners have reported originations picking up in January, which makes the company cautiously optimistic about Q2."

However, that was enough to set alarm bells ringing as some analysts on the call were also concerned as Enphase highlighted that its "6-month order visibility" has been curtailed.

Does it matter? Of course, it does. Despite theconsensus buyratings of Wall Street analysts, their projections indicate that Enphase's revenue and adjusted EBIT growth are expected to slow further through FY25.

Enphase posted an FY22 revenue growth of 42.6% and an adjusted EBIT growth of 102%. However, the company's revenue growth is expected to increase at a 3Y CAGR of 27.8% through FY25, suggesting a marked slowdown.

Could Enphase continue to outperform the analysts' estimates? Absolutely. But, with growth expected to continue slowing, the critical question is whether the company could lift its profitability growth further.

Enphase is optimistic about the adoption cadence in its IQ8 microinverter product mix, which should continue to drive its margins. Accordingly, 55% of its FQ4 shipments were driven by IQ8. It also expects more shipments into Europe, and management projects IQ8 gross margins of about 60% in the current quarter. Therefore, it augurs well for its targeted 90% penetration, which should help support investors' confidence in its profitability ramp.

Moreover, the company has several secular growth drivers, such as its EV charging systems, to bolster a holistic consumer ecosystem as it leverages the tailwinds inincreased EV adoptionin the US and Europe.

As the volume ramp is still nascent, we urge investors to pay close attention to Enphase's ability to capitalize on its EV momentum, which could help to mitigate the expected growth normalization in its core business.

With ENPH falling toward its 50-week moving average (blue line), some weak holders who bought at its highs in December have likely been forced out.

Also, ENPH's next twelve-months or NTM EBITDA multiple of 30.5x has fallen closer to its February and May 2022 and below its 10Y average of 40.3x.

Those levels in February and May 2022 also attracted buyers to return and support ENPH's upward momentum, as seen in its price action.

Could ENPH's current consolidation zone help to undergird a recovery in 2023? We think the opportunity is much more constructive now.

However, investors must still be cautious about ENPH's volatility and plan their capital allocation appropriately to avoid overexposure.

Rating: Speculative Buy (Revise from Hold).