Enphase Energy, Inc. (NASDAQ:ENPH) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days were the cherry on top of the stock's 429% gain in the last year, which is nothing short of spectacular.
Following the firm bounce in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Enphase Energy as a stock to avoid entirely with its 72x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Enphase Energy has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think Enphase Energy's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Enphase Energy's Growth Trending?
Enphase Energy's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered an exceptional 247% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the analysts watching the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Enphase Energy's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
Enphase Energy's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Enphase Energy maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
Plus, you should also learn about these 3 warning signs we've spotted with Enphase Energy.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.