Why Enphase Energy Stock Crashed Today

Enphase Energy (NASDAQ: ENPH) stock tumbled 12% through 10:20 a.m. ET Wednesday despite an earnings beat last night.

Heading into the report, analysts forecast Enphase would earn only $0.71 per share (non-GAAP) on sales of $383 million, but Enphase beat those numbers with a stick. Earnings came in at a strong $0.90 per share, and sales passed $410.4 million.

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Enphase Q3 earnings

Enphase is in the business of making microinverters to convert solar power into electricity, and business is good. Quarterly sales climbed 7.7% year over year, Enphase's best sales number in two years. Gross profit margin on those sales grew a full percentage point to 47.8%, while operating costs barely budged -- up only 1.4%.

All of the above drove a 45% improvement in net profit at Enphase -- $66.6 million total on the bottom line. And while GAAP profits weren't quite as good as the $0.90 non-GAAP number noted above, Enphase still ended up with net earnings of $0.50 per share for the quarter.

Why isn't Enphase stock a buy?

So that's the good news, which doesn't explain why investors are selling Enphase stock. The reason for that is guidance.

Turning to Q4, Enphase warned that sales will range from only $310 to $350 million, a steep fall from Q3 and way below the $383 million Wall Street was projecting. Gross profit margin will also be down a lot, ranging from only 40% to, at most, 43%. Enphase didn't say what it expects all this to add up to in terms of profit per generally accepted accounting principles, but the logical conclusion is that earnings will fall substantially below what Wall Street expects.

In other words, after beating earnings in Q3, Enphase will miss earnings in Q4. That's why investors are selling.

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