Investors sometimes get overly enthusiastic about a new technology. When that happens, rapid growth can occur, and stock valuations related to that technology can soar. But overly fast growth can lead to a quick crash.
For long-term adaptations, however, long-term growth can lead to great results, especially for investors who allocate capital to these technologies after they’ve been proven, but while investors have left the trend for dead.
For instance, solar technology has been improving at a rapid pace, with panel costs significantly declining over the past few years. Yet investors are more focused on short-term trade war fears than on the fundamentals, showing long-term adoption of this power source.
That’s good news for solar infrastructure plays like Enphase (ENPH). Shares were knocked down to a 52-week low on Wednesday following an earnings miss.
However, revenue growth is still up 35% over the past year, and the share price should rise with increasing revenues. Plus, Enphase trades at 13 times forward earnings, meaning that it’s still a value play, even with the current uncertainty.
Action to take: Contrarian investors may want to buy a small stake here. Enphase has the potential for double-digit returns in the months ahead.
For traders, the September $60 calls, last trading for about $3.45, could deliver mid-double-digit returns or better on a post-earnings rally in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.