ENPH, Enphase Energy

Will it survive?

• Can it pay its interest? 34.8×
  Comfortable
  Operating income $158M ÷ interest expense $5M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? +$308M
  Net cash
  Cash $474M + ST investments $1.0B − debt $1.2B
  What this means

  Cash and short-term investments exceed every dollar of debt by $308M, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 96d
  Long (60+ days)
  DSO 57 + DIO 134 − DPO 94 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 16%
  High through the cycle
  9-yr median, range -675%–138%; 7% latest = NOPAT $132M ÷ invested capital $1.8B
  Industry peers: median 7%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 9 years (it ran 7% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 22%
  High through the cycle
  10-yr median margin, range -14%–36%; latest $96M = operating cash $137M − maintenance capex $41M
  Industry peers: median 7%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 7% of revenue this year, a 22% median across 10 years. Treating stock comp as the real expense it is (less $214M of SBC) leaves ($118M).

• Are earnings backed by cash? 0.79×
  Mostly cash-backed
  Cash from ops $137M ÷ net income $172M
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 136%
  Returned more than it generated
  Dividends + buybacks $130M ÷ Owner Earnings $96M — this fiscal year
  What this means

  The company returned more than it generated: against $96M of Owner Earnings, $130M (136%) went back to shareholders, $0 dividends, $130M buybacks — the excess came from the balance sheet or borrowing, not the year's operations. But the buybacks barely exceed stock issued to employees ($214M SBC), net of dilution, little was truly returned. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands. This year's proportion is 136%; across the record (2016–2025) it is 58%, the capital-allocation section below.

• Investing or harvesting? 0.50×
  Harvesting
  Capex $41M ÷ depreciation $81M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• What does winning a customer cost? 13%
  Sells itself
  Selling and marketing $198M ÷ revenue $1.5B
  What this means

  Sales and marketing as a share of revenue, kept apart from administrative overhead because it answers a different question: how much a business must spend to win the next customer. A company whose product pulls customers in spends little here and keeps the difference; one that must buy its growth is running to stand still, and the spending has to keep rising for revenue to keep rising. Read it beside the growth rate, not alone.

• Is the buyback buying ownership, or mopping up? 14.5%
  The count is genuinely shrinking
  Stock compensation $214M (fiscal 2025), 14.5% of revenue · repurchases $130M · diluted shares -6.6% since 2022
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 2 of 4 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Near
  Revenue ≥ $2B · $1.5B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Pass
  Current ratio ≥ 2× · 2.07×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $1.2B vs $1.3B WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (10-yr record) · 3 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record —
  Uninterrupted dividends · no dividend line tagged in the data
  What this means

  An unbroken dividend was Graham's mark of durability. This record carries no dividends-paid line in any year — common for partnerships, whose distributions file under tags the chain doesn't read — so the criterion is withheld rather than judged on silence.

• Earnings growth —
  Earnings +33% over the record · —
  What this means

  Earnings were negative early in the record, a growth rate isn't meaningful.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $1.80/share (latest year $1.30), the averaged base the calculator's gate runs on, and book value is $8.23/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 7 of 10
  What this means

  Lost money in 3 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 5 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin −11% → 12% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about −11% early to 12% lately, median 11% — pricing power intact or improving.

• Reinvestment, incremental ROIC 12%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

• Worst year 2016 · −19.4% op. margin
  What this means

  Operations went underwater in 2016, understand why before trusting the good years.