Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Enphase Is down 13 Percent in a Week
Transcript
- Lucas: Enphase Energy has dropped 13 percent over the past five trading days. That is a brutal move for a stock that was already down more than 40 percent from its 2024 high. Luna: And it's not just Enphase. The broader solar ETF, TAN, is down about 6 percent over the same period. But Enphase is getting hit disproportionately hard. Lucas: Right. So the question is: why is Enphase falling twice as fast as its peers? The answer, I think, lies in a combination of macro and company-specific factors. Luna: Let's start with the macro. Oil prices have dropped sharply — WTI crude is down 8 percent in the last week, trading around 74 dollars a barrel. And that's largely because of the U.S.-Iran deal. Lucas: Exactly. The deal, signed yesterday, is expected to bring Iranian oil back into global markets. The IEA immediately followed up with a forecast of a supply glut next year. That puts downward pressure on oil prices, which in theory reduces the urgency for renewable energy adoption. Luna: But does that logic hold? I mean, oil and solar are not direct substitutes. Solar powers electricity, oil powers transportation — mostly. Lucas: You're right, they're not perfect substitutes. But in the minds of investors, lower oil prices can signal lower inflation and a slower pace of energy transition. It's a sentiment shift. And sentiment has been brutal for clean energy since the deal was announced. Luna: So the macro is a headwind. But Enphase has company-specific issues too, right? Lucas: It does. Enphase derives a significant portion of its revenue from Europe, and European demand for solar microinverters has been softening. High inventory levels at distributors mean they're destocking rather than ordering new products. Luna: And that's been a theme for a few quarters now. But the market seemed to be pricing in a recovery in the second half of the year. Lucas: That recovery is being pushed out. Plus, the U.S. residential solar market is also sluggish because of high interest rates. Even though the Fed hinted at a possible rate hike this year — which is wild to think about — the reality is that borrowing costs remain elevated, and solar installations are sensitive to financing. Luna: So we've got macro headwinds from the oil deal, Europe destocking, and high rates. That's a triple hit. But is there anything else? Lucas: There is a bit of a technical factor too. Enphase has a relatively high short interest, around 18 percent of float. When the stock started falling, some short sellers may have added to their positions, amplifying the decline. But the bigger picture is that the market is reassessing the timeline for the energy transition. Luna: And that reassessment might be overdone. If you look at the IEA's supply glut forecast, it's based on the assumption that Iranian oil comes back quickly. But Iran's production capacity has degraded after years of sanctions. They might not be able to ramp up as fast as the IEA assumes. Lucas: That's a good point. Also, the broader clean energy index, ICLN, is only down 1 percent over the last five days. So the selloff is concentrated in solar, specifically. Wind and grid stocks are holding up better. Luna: NextEra Energy, for example, is actually up 1 percent over the week. That's a utility with a huge renewable portfolio, but it's more diversified and less exposed to the residential solar slowdown. Lucas: So the market is making distinctions. It's not a blanket rejection of clean energy. It's saying: solar, and especially residential solar, faces real near-term challenges. Luna: Which brings us back to Enphase. The stock is now trading at around 48 dollars, down from a high of over 130 in 2024. The price to earnings ratio has compressed significantly, but it's still not cheap on a forward basis. Lucas: The forward P/E is around 22, which is below its five-year average of 30. But earnings estimates have been coming down too. Analysts are cutting their numbers as demand weakens. Luna: So the stock is falling because earnings expectations are dropping faster than the price. That's a classic value trap risk. Lucas: Exactly. You can't just look at the multiple and say it's cheap. You have to ask whether the earnings base is sustainable. And right now, there's a lot of uncertainty. Luna: If today's conversation helped you make sense of what's happening in solar and clean energy, that's exactly why we do this show. And the way we keep it ad-free is through listener support at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that makes a big difference. It lets us keep digging into the numbers without worrying about sponsors. Luna: So back to Enphase — where do we go from here? The company reports earnings in late July. That will be a key catalyst. Lucas: It will. And the guidance will matter more than the headline numbers. If management signals that the destocking cycle is ending and orders are picking up, the stock could rebound fast. If not, we could see further downside. Luna: Also watch the oil price. If the Iran deal implementation stalls or oil prices stabilize, some of the macro pressure on solar stocks could lift. Lucas: That's the thing about these sentiment-driven moves — they can reverse quickly if the narrative changes. But for now, the market is voting with its feet, and Enphase is the biggest loser. Luna: It's a reminder that even in a long-term growth story, the short term can be brutal. Especially when multiple forces align against you. Lucas: And that's the reality of investing in clean energy right now. The transition is real, but it's not linear. There will be bumps along the way.