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For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the Enphase Energy, Inc. (NASDAQ:ENPH) share price. It's 921% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. On the other hand, the stock price has retraced 9.0% in the last week. But this could be related to the soft market, with stocks selling off around 3.2% in the last week. Anyone who held for that rewarding ride would probably be keen to talk about it.
Since the long term performance has been good but there's been a recent pullback of 9.0%, let's check if the fundamentals match the share price.
View our latest analysis for Enphase Energy
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years of share price growth, Enphase Energy moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Enphase Energy share price is down 36% in the last three years. During the same period, EPS grew by 45% each year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -14% a year for three years.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Enphase Energy's earnings, revenue and cash flow.
A Different Perspective
Enphase Energy shareholders are down 52% for the year, but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 59% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.