The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.

John and David are making a small investment in a growing company within the solar industry: Enphase Energy. Enphase Energy sells microinverters for solar panels. Inverters convert the DC power coming from the solar cells to AC power that can be used. Solar panel makers such as First Solar have been dogged by an oversupply of panels. However, solar panels do not work without inverters. Competitors Power-One and Advanced Energy Industries sell central inverters, which collect the inputs from all of the panels into a single source and convert it to AC power. Enphase sells microinverters that attach to each individual panel, as well as software that can monitor the system. It's more expensive, but provides lower cost of ownership. Enphase Energy microinverters are taking the industry by storm. The company is growing quickly, and has plenty of opportunity ahead of it. The key will be if it can continue to increase its margins as it grows. David thinks Enphase's margins will improve but, given the risks, he has decided on a small position.

 


 

 

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The article Why We're Buying a Solar Company originally appeared on Fool.com.

David Meier has no positions in the stocks mentioned above. John Reeves has no positions in the stocks mentioned above. The Motley Fool owns shares of Power-One and Solazyme. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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