Markets

Why Enphase Energy Stock Popped 7% After Earnings

What happened

Shares of solar-microinverter maker Enphase Energy (NASDAQ: ENPH) popped in after-hours trading Tuesday, after reporting estimate-thumping earnings. Expected to earn $0.24 per share on $168.6 million in sales, Enphase earned $0.28 per share, instead, on sales of $178.5 million.

But that's not the only reason Enphase shares are rocking -- up 4.6% as of Wednesday, 12:30 p.m. EDT.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

Enphase's third-quarter sales actually slipped about 1% in comparison to last year's Q3. However, the company reported "record" gross profit margins on these sales of 53.2%, which was up a staggering 1,730 basis points from one year ago. Operating profits jumped 54% year over year, and on the bottom line, Enphase's $0.28 per-share profit grew 22%.

Wall Street applauded the results this morning, with no fewer than four separate analysts raising their price targets on the stock, to as high as $127 a share.

Now what

The news isn't all good, however. As sales declined, Enphase's operating costs climbed significantly -- up 39% year over year. True, the improvement in gross margins was sufficient to absorb the higher operating costs and deliver an increase in profits, regardless. But at least two Wall Street analysts broke away from the herd and downgraded Enphase stock today.

Banker H.C. Wainwright cited higher operating costs specifically when it removed its buy rating from Enphase stock. Although the company's latest projections have it generating revenues of anywhere from $245 million to $260 million in the year's final quarter, which is more than most analysts are expecting, Wainwright warned that there was little in the report to justify raising its own revenue projections. Investment bank Craig-Hallum, meanwhile, cited Enphase's sky-high valuation as a red flag. At 70 times trailing earnings, the company's stock has a lot of success priced into its valuation.

Luckily for shareholders, so far, Enphase is continuing to be successful.

10 stocks we like better than Enphase Energy, Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Enphase Energy, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2020

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

ENPH

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More