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Why Enphase Energy Stock Crashed on Wednesday
Key Points
Enphase missed badly on earnings last night.
Sales and margins declined, leading to a 90% collapse in operating profit.
Solar power microinverter-maker Enphase Energy (NASDAQ:ENPH) stock collapsed in morning trading Wednesday, falling 15.5% through 10:05 a.m. ET after missing on earnings last night.
Heading into the report, analysts expected Enphase to earn $0.51 per share, non-GAAP, on $303.8 million in sales, but the most Enphase could muster was $0.41 per share on $293.3 million in sales.
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Enphase Q3 earnings
Sales plunged 28.5% year over year, and gross profit margin earned on those sales fell 450 basis points to 43.3%. Operating costs declined as well, but not enough to offset the collapse in sales and the margin decline. Operating income evaporated -- down 90% year over year -- and on the bottom line, Enphase's earnings calculated under generally accepted accounting principles (GAAP, as opposed to the non-GAAP earnings the analysts focused on) were only $0.17 per share, down 66%.
Enphase blamed "soft residential solar demand" in the U.S. and "summer seasonality and continued weakness in certain solar markets" in Europe for the poor results.
What's next for Enphase stock
And things could get worse before they get better.
Turning to guidance, Enphase management predicted that Q4 sales will be about $240 million, plus or minus, a sequential decline from Q3. Gross margins will likewise continue to weaken, probably falling below 40%. Even worse, operating costs may not decline much at all, suggesting Enphase is at the limit of having fat to cut, and won't be able to offset falling sales and narrowing margins with cost-cutting.
At its current valuation of 30 times earnings -- earnings that will continue to fall -- I see little reason to want to own Enphase stock right now.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.