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Discussing Enphase Energy's stock within the portfolio
Exploring the rising electricity consumption trend and its impact on sectors such as AI and transportation
Identifying top companies like Enphase in the renewable energy sector
Understanding the growth of the US solar market and Enphase's pivotal role
Detailing Enphase's solar energy management system and advanced software capabilities
Recognizing Enphase's market dominance in the inverter sector and its focus on customer satisfaction
Analyzing Enphase's profitability and resilience amidst economic conditions
Highlighting the significance of insider buying and Enphase's share repurchase initiatives
Examining Enphase's potential as a key player in the renewable energy landscape
As-salamu alaykum everyone, I hope you are doing well. I received feedback last time that I was talking too much about crypto. So in this slide we're going to talk about a stock that we have in our PIF growth portfolio and that stock is Enphase Energy. I'm going to tell you what I think about it right now and why I think the bottom may be very near. Today it's actually popped close to 8% as of filming this. So without further ado, let's get started. As always, this is not financial advice, so be sure to do your own due diligence before making any investing decisions. So let's step back a bit and tell you about the overall investment thesis I have for this coming period. So this thesis centers on the following idea. Electricity consumption per person is increasing. And so if you look at, for example, artificial intelligence, this is very, in terms of its needs for compute, this is very electricity dependent. If you look at transportation, for example, this is being electrified and increasingly you're going to see more and more things rely on electricity and compute, which relies on electricity. And so electrification will intensify. Electricity demand will obviously rise and ancillary businesses to electric generation will benefit. The solar industry is one of those ancillary businesses. And so you want to, when you've identified a general theme, you want to then try and pick out what is the best of breed company within that theme. And so this is what we've done here. So building on this investment thesis, so it's not just pie in the sky, let's look at the numbers and what's actually happening. So there are projections that these US solar market is going to triple by 2028. And if you look at the US solar industry in 2023, it experienced a remarkable 51% growth over 2022. And it was the biggest year for the industry by far. And a large part of that is due to the rising costs of utilities, electricity. So more and more people, businesses are opting for solar panel and doing their own sort of energy generation and storage. And this makes a lot of sense. And when interest rates come down, when they eventually come down, this is going to be extremely bullish for the entire industry because people will be able to take on larger and larger projects. So we've experienced the growth in 2023, despite the macro economic environment. So imagine what type of growth this industry could experience if we had a favorable interest rate environment. So Enphase is a complete solar energy management system. So they started off with microinverters, which just transform direct current to alternating current so that you can use it in your house. And their sort of claim to fame was the microinverters that you could install to each solar panel as opposed to having just one inverter for the entire solar panel farm. And that made the entire system more robust. So previously, if the inverter went bad, the entire farm would stop working. Whereas with microinverters, it's on a panel by panel basis. So you have a much more robust system. They also do things like battery storage and electric vehicle. They make electric vehicle charges. And they have a pretty robust software that organizes sort of everything and plans out sort of the energy generation and storage process, which they, you know, they're like, well, you know, you could say that there's some artificial intelligence that's being used in that. And I think that with time, this artificial intelligence will get better and better. So it is definitely the top brand for inverters. This was why I called it the best of breed. So if you look at Enphase Energy, they are by far the top inverter brand. If you look at their market share in terms of storage, they are by far the leader. And in second place is Tesla. And you've seen them. What's really, I think, impressive about this image is that you've seen them be able to maintain their market leadership over a period of time. So as competitors come in, they've been able to adapt and maintain their market share over time. All this while the pie is increasing in size. So even if they were losing market share, but the pie was increasing fast enough, they would still experience pretty robust growth. But maintaining this leadership position while the pie is growing, while the industry is growing, accelerates their growth that much more. Now, part of the reason for this market leadership, they have a net promoter score. So the way they deal with customer issues, they have a net promoter score of 77. And now to put this into context, and so that means something to you. Amazon has a net promoter score of 73 versus Apple of 61. So they're doing extremely well in terms of taking care of their customers post installation. And that's very important. This makes marketing that much easier because if you're thinking about installing solar panels for your house, a good reference, a common source would be asking your neighbor who had their solar panels installed. And a net promoter score that's high means that customers are very willing to refer other people to the company. So this is extremely important for keeping marketing expenses down and for growth for the company. As someone who likes to dig into financials, this is a beautiful picture for me. So if you look at the profitability of this company, it is just really second to none. Looking at gross margins that are close to 50% and something that's really impressive. If you look at the return on common equity, that's close to 50%. So basically as a common equity investor, I want to know how much additional income they're able to generate per $1 I give them. And the return on common equity, you can see that dark A plus next to it at 48 and a half percent. That's really extremely impressive. And they've been able to maintain this profitability, despite, as we mentioned, the very adverse macroeconomic conditions. And then while insider trading is illegal, following what insiders are doing is not illegal. And so the closest one can get, an investor can get to having an edge is looking at what the insiders are doing and insiders are buying. So if you look at the CEO, he bought close to half a million dollars worth of Enphase at $120. And then if you look at the last year, you can see people were, so the CEO and other directors were buying at prices of 90, 122, 158, 166, 164. And these are not trivial numbers that they're buying here. And not only that, not only are insiders buying, but Enphase, the company itself is repurchasing its shares. So they've announced $1 billion in buybacks of their own shares, which is always encouraging. So, you know, if you, perhaps the, the analysts that have the most edge with regards to analyzing any company are the insiders of that company. They know everything about the company, they know it intimately. And when you see them buying, this is typically, this can be a strong signal. So if you look at the correlation between insider buying and the performance of the stock over the next 12 months, that correlation is close to 0.5%, right? Or I'm sorry, 0.5. So the highest correlation would be a one, whereas insider selling the correlation is minus 17. So ignore the minus, minus 0.17. So ignore the minus, because that just saying, well, obviously if selling is happening, then this is, this is negative for this stock. However, minus 0.17 is, is very close to zero. So there's almost no correlation, right? So oftentimes insider selling is noise. 0.51 is 3X, which is the insider buying correlation. And so insider buying is three times as predictive as insider selling is. So it's much more of a signal than insider selling ends. And we definitely have some insider buying here. So this is very important. And in the last earnings call, the MFA CEO said that we think Q1 could be the bottom, Q1 24 that is, Q could be the bottom quarter. Europe is already showing early signs of recovery and we expect the non-California states to bounce back quickly. So this is a very good company in my estimation, in my assessment, a very good company that has been beaten down by macro macro economic conditions, but is part of a secular growth story. And it seems to be the best of breed currently in that sector. And so this is a company that I am bullish on. If you'd like to see our buy below, sell above prices, do become a PIF member or community of Halal conscious investors trying to do the right thing and do well as well. So with that being said, let's take some questions very quickly. Sam brother, always great to see you. Thanks Rashad. Thank you very much. Thank you very much. I appreciate that. He says what an amazing portfolio run for PIF. Keep it coming. I encourage the viewers to check it out. Thanks. Assalamu alaikum. For all that you do for the community. Thank you so much. I really appreciate that. Do you see any competitor to Salama in today's market? Not really in terms of like, you see a lot of competitors talking about, oh, well, we're doing this many transactions per second, or, you know, theoretically we could do this much, but it's very easy to have to post these high speeds when no one is using your network, right? Salama is the only, I think, network that has proven its, its abilities in an environment of very high usage. And so it's tough to overcome that hurdle if you're a competitor. Yeah, definitely not. I just wanted to give my feedback. Oh, thank you. I'm really glad that you like it, Salim. Oh, thank you so much. Three amazing comments. That really made my day. Thank you so much. I'm glad you're enjoying the PIF membership. That's on Piedmont. Lithium has some recovery today. Yeah. Piedmont popped today. I think it popped close to 10%. So our thesis is playing out there. Inshallah. I think there's, there's more upside here. If you look at lithium prices, they did pop. And I knew that following the slight recovery in lithium prices, there was going to be a recovery in Piedmont. There was a slight retracement yesterday. I haven't checked them today. But I think the overall trend is upwards. Yeah, I think nuclear technology actually is, I am bullish on it. I think eventually the truth will come out that this is not something that is necessarily should be feared as much as it is feared. It's not as dangerous as people necessarily make it out to be. So, you know, one result of that would be uranium companies doing well. So uranium mining companies doing well. So that might be, you know, something to look into. But I only tend to invest in mining companies, commodity companies if they are grossly undervalued. So generally speaking, I'm not really a fan of investing in commodities, but I do think that, you know, nuclear and ancillary industries will do well moving forward because there's a, the amount of energy consumption per person on this planet is increasing with time. This is readily apparent. And with AI and compute becoming increasingly, you know, part of our lives, this is going to increase exponentially. So I think that this is the investing theme that will guide many great investments in the next few years. So anything that can provide energy efficiently and at scale like nuclear can is something worth looking into. Although, you know, with nuclear, the ramp up is extremely, is extremely slow. It takes a lot of time. There's a lot of capital investment that needs to go in there. It's not like solar panels where you could have, you know, separate systems for separate houses. So there, I think there, there are different use cases for each. So I don't necessarily see them competing with one another. I think moving forward the, so I think about, I think of it this way. If the, if the demand for AI becomes essentially infinite, right? So as, as much as can be produced, right? As much compute as can be produced is what the demand is. Then the demand for energy is similar. So as much energy as can be provided is what is needed, right? Then the more energy that one can get access to, the more possibilities they have. So I think it's a really good space to be investing in. All right. I hope you guys found that beneficial until next time, make sure to take care of yourself. Assalamualaikum and peace be upon you all.
