Manufacturers in the solar arena that do not produce a commodity product, such as the wafers, cells or modules, offer pure-play opportunities for investors versus companies that make these products, where the oversupply and the margin pressures are in the sector, says Pavel Molchanov, an Analyst at Raymond James & Associates, Inc.
“The reality that the solar manufacturing arena is facing structural and severe oversupply has actually not changed at all in the last six to 12 months. Whether it got worse or is about the same, I suppose, is debatable, but it remains an extremely tough market,” he said.
Molchanov favors Enphase Energy, Inc. (ENPH), a leading provider of microinverters, a cutting-edge product with little competition right now and for the foreseeable future. He says Enphase is the world’s only major producer of microinverters, and that’s why in the context of declining industry margins and flat-to-down revenue, Enphase in 2012 is poised to grow top line by about 60%, and should improve its gross margin by several percentage points.
“It’s not currently a profitable company, but we think Enphase will turn cash flow positive about a year from now. Last year’s revenue was $150 million. This year, we are projecting more than $220 million. So it is a well-established company in the solar inverter arena that is growing and taking market share despite a difficult market environment,” Molchanov said.
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