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Shares of solar inverter leader Enphase Energy (NASDAQ: ENPH) plunged on Tuesday, down 14.2% as of 12:11 PM EDT, which was all the more notable as the Nasdaq Composite was up by a big 2.6% at that time.
Enphase not only missed analyst estimates for the quarter, but also guided below estimates for the current second quarter. Moreover, tariffs threaten the company's margins later in the year.
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Enphase whiffs
In the first quarter, Enphase reported 35.2% revenue growth to $356.1 million, along with adjusted (non-GAAP) earnings per share of $0.68, which was nearly double the year-ago earnings figure.
You might think 35% revenue growth and 100% earnings growth is a great number to post, but Enphase was actually lapping a phenomenally bad quarter at the very trough of the solar cycle last year. Thus, analyst expectations were even higher, at $362 million and $0.73 in earnings per share.
Moreover, management guided for essentially flat revenue this quarter, in a range between $340 million and $380 million. The midpoint was below analyst estimates of $376 million.
Additionally, with tariffs top of mind for investors, CEO Badri Kothandaraman noted that the second quarter would see a 2% gross margin headwind due to tariffs, which would then increase to a 6% to 8% impact in Q3 and Q4, since Enphase has already built some inventory for the current quarter.
Enphase benefits big from IRA subsidies
Not only does Enphase face a tough macroeconomic environment, as consumers likely shy away from big-ticket purchases such as solar panels, but current politics only has negative potential implications. Not only will tariffs hurt the company's gross margins this year, but Enphase also receives significant subsidies and tax benefits as a result of the Inflation Reduction Act (IRA).
For instance, the IRA currently boosts Enphase's gross margins by over 10 percentage points, and the act's tax credits also lower Enphase's tax rate by six percentage points. The IRA also boosts growth, as it provides additional incentives for solar installers that use Enphase's microinverters and batteries. While the IRA is still the law of the land today, it's unclear if the current Administration and Congress will try to claw back the Act in part or in whole. So, that's also another negative overhang.
However, this long list of negatives could be an opportunity for long-term believers in residential solar. Enphase's stock is now 84% off its all-time highs, and shares currently trade at 18.7 times this year's earnings estimates and 13.1 times 2026 estimates. While risks abound, that's still the lowest valuation for the stock in recent history, and the company is still profitable.