Why Enphase Energy Stock Was Sputtering This Week

The past few trading days haven't been kind to solar energy stocks, and Enphase Energy (NASDAQ: ENPH) has been caught in the rout.

Developments in the legislative sphere kicked off the downturn, which was compounded in Enphase's case by several downbeat analyst notes. As of late Thursday, the company's share price was down more than 20% week to date, according to data compiled by S&P Global Market Intelligence.

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No credit?

Enphase stock took a serious hit on Tuesday when the Senate Finance Committee floated the idea of more aggressive cuts to the tax credits currently in place for implementing green energy solutions. These would be made in order to get President Trump's pet Big, Beautiful Bill passed in that chamber. Specifically, the committee recommended phasing the credits out completely by 2028, instead of the current deadline of 2032.

Image source: Getty Images.

As Enphase came to prominence with one crucial solar component -- its micro-inverter that transforms the direct current (DC) electricity generated by solar panels to the alternating current (AC) used in households -- it stands to be directly affected by such a drastic change.

That development was worrying to many Enphase investors and observers, a group that includes analysts tracking the stock. Several pundits became more notably bearish on Enphase's future, with one going so far as to downgrade her recommendation on the solar stock.

A dimmer view

That analyst is KeyBanc's Sophie Karp, who cut her Enphase recommendation to underweight (sell, in other words) from her previous sector weight (hold) and assigned a price target of $31 per share. Not surprisingly, Karp's new take was based largely on the Senate's move, according to reports.

While tax credits are not the be-all and end-all of the solar business, it is a sector that continues to struggle with myriad negative factors (high costs, significant competition, etc.). So this pull-the-rug proposal won't do it any favors at all. I'd be extremely wary of Enphase and its peers right now.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.