Is it safe to buy Enphase Energy (ENPH) stock?

Enphase Energy's (NASDAQ: ENPH) stock price has done well in the past few months. After crashing to a low of $73.71 in 2023, it has surged by more than 65% to the current $120. This rebound happened even as concerns about the solar energy industry continue to face major headwinds.

Inventory and industry challenges

Enphase Energy is a leading company in the solar energy industry that has faced numerous headwinds in the past few years. ESG investing has become toxic, leading to strong outflows, which has affected solar and wind companies.

Its sales have crashed hard in the past few quarters. Annual revenues dropped from $2.3 billion in 2022 to $2.29 billion in 2023. In the fourth quarter, revenue plunged by 58% YoY to over $302 million. Its profitability came in at $438 million.

One of the top concerns about Enhphase is its huge inventories. The company’s inventory has remained at an elevated level. Inventory jumped from $149.7 million in Q4’22 to $213 million. Talking about this, the company’s CEO said this in the last earnings call:

Its management has worked to reduce this inventory in the past few quarters, by stopping its contract manufacturing plants in Romania and Wisconsin. 

Enphase Energy believes that its business will return to growth in the second half of this year. For the first quarter, it expects that its revenue will be between $260 million and $300 million. 

It also expects to continue rewarding its shareholders through share buybacks, helped by its strong balance sheet. It ended the quarter with $1.7 billion in cash and equivalents and $18 million in marketable securities. Its share repurchases totalled over $410 million.

From a fundamental perspective, I believe that Enphase Energy faces a tough period this year as solar installations slow. The US installed 32.4 gigawatts of solar in 2023, helped by the Inflation Reduction Act. Analysts believe that this growth will slow this year. For example, in California, residential installations are expected to drop by 13% this year.

Enphase Energy stock price forecast

ENPH chart by TradingView

The daily chart shows that the ENPH share price has moved sideways in the past few months. It rose and reached a high of $139.43 in January. It has remained below the 200-day Exponential Moving Average (EMA). 

The stock has formed a triangle pattern, which is shown in black. Also, the Relative Strength Index (RSI) has pointed upwards. Therefore, I suspect that the stock will see some big moves in the coming weeks as the triangle pattern nears its confluence. If this happens, the key support and resistance levels to watch will be at $100 and $140. I believe that the former will happen and it will retreat to $100.