Shares of Enphase Energy Inc. continued to drop on Thursday after a prominent analyst advised investors to stop buying the stock. Analyst Sophie Karp at KeyBanc Capital downgraded Enphase Energy to sector weight, after previously ranking it as overweight for the past 16 months.
Karp cited uncertainty about when the concerns regarding supply in the solar market will subside as the reason for the downgrade. She mentioned that a poorly quantifiable inventory glut in the channel has persisted for longer than initially anticipated, leading to low visibility, even for the management team.
The stock, with the ticker symbol ENPH, dropped 3.6% in afternoon trading and has experienced a steep decline of 13.9% over a six-session losing streak. This losing streak marks the longest since the one that occurred in October 2025.
This recent selloff comes after the stock plunged 50.1% in 2023, which ended a six-year streak of impressive gains when the stock surged by an astonishing 26,134%.
Karp's neutral view on Enphase's stock aligns with her cautious outlook for the alternative-energy sector as a whole. She identified several headwinds facing the sector, including pricing pressures and inventory gluts in the solar-equipment market. Karp also mentioned the less-than-ideal government guidance regarding incentives from the Inflation Reduction Act and a diminishing enthusiasm surrounding the IRA.
Furthermore, falling energy prices in the United States and the European Union are expected to weigh on the sector since they reduce the urgency to transition to renewable energy sources.
Read: What Happened to Solar Stocks? Investors 'Pick Up the Pieces' After a Brutal Earnings Season.
In conclusion, Enphase Energy Inc. faces numerous challenges as it grapples with supply concerns and a difficult market environment. The company's stock continues to face downward pressure, and analyst Sophie Karp has downgraded it to sector weight amid a cautious outlook for the alternative-energy sector overall.
Risks Ahead in the Solar Industry
As the solar industry continues to face challenges, it is important to consider the potential risks that lie ahead. According to industry expert Karp, the upcoming U.S. elections in 2024 pose the "biggest risks" to the solar space. In the past, solar stocks have experienced a downturn due to the negative perception of Republican policies for renewable energy.
Karp emphasizes that the 2024 elections could have an even greater impact on renewable policies, as they have become increasingly politicized. This could lead to a decline in sentiment and potentially unfavorable outcomes for the sector. In this regard, Karp suggests that Democrats retaining their slim majority in the Senate is crucial for the solar industry.
While risks loom large, there is a potential bright spot on the horizon. If the Federal Reserve decides to cut interest rates sooner rather than later, it could provide a much-needed boost to the sector.
Performance and Valuation
In terms of performance, the Invesco Solar exchange-traded fund (ETF), TAN, has experienced a recent decline of 2.1% and a four-day losing streak. It faced its worst yearly performance in 2023, dropping by 26.9%, since a significant decline of 45.9% in 2016.
Despite these challenges, Karp maintains a positive outlook on Enphase, a leading solar company. She believes that Enphase's valuation is reasonable and praises its long-term positioning in the solar industry, as well as its strong cash-generation capabilities.
Taking a Cautious Approach
Considering the overall unfavorable setup in the solar industry, Karp suggests a cautious approach. It is prudent to take a step back and adjust the weighting of investments accordingly.
Over the past three months, Enphase shares have seen a modest increase of 0.9%, while the solar ETF has gained 2.3%. In comparison, the S&P 500 index has experienced a significant rally, climbing by 10.3%.
While the solar industry faces risks and challenges, careful navigation and strategic decision-making can help investors adapt to the changing landscape.
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