Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Enphase Energy (NASDAQ:ENPH) stock is going gangbusters.

Last night, the maker of solar microinverters -- devices that convert direct current solar energy to alternating current -- reported its financial results for fiscal Q2 2019 and blew Wall Street away. Instead of the $0.13 per share that analysts had predicted, Enphase said it earned $0.18 per share pro forma, despite only matching consensus revenue expectations of $134.1 million.  

(Earnings as reported under generally accepted accounting principles were only $0.08 per share.)  

Enphase's stock is up 33% in response in today, and Wall Street price targets are surging higher as well, with Oppenheimer now valuing Enphase at $26 a share, Roth Capital saying $30, and Craig-Hallum raising its price target to $31 (all price hike details courtesy of TheFly.com).

On top of all that, investment banker H.C. Wainwright this morning more than doubled its price target (to $36) and upgraded Enphase stock to buy. Here's what you need to know.

Solar panels with sun in the background

Image source: Getty Images.

Enphase by the numbers

Enphase had simply a boffo Q2, growing its sales 77% year over year, expanding gross margin to 33.8%, more than doubling operating profit, quadrupling net profit -- and topping all of the above off with raised guidance for the rest of this year.

Management said it's seeing "strong demand across the board from our customers," to the extent that "demand continued to outstrip available supply," leading the company to increase its capacity to meet the increased demand for its products.

With demand galloping ahead, Enphase raised its guidance to predict it will make between $170 million and $180 million in sales in the current fiscal third quarter. (Wall Street didn't think the company would hit even $130 million.)  

Moreover, Enphase sees a distinct possibility that gross margin will continue to rise -- perhaps to has high as 36% in Q3 -- in which case earnings could well exceed the $0.14 per share that analysts currently expect Enphase to earn in the quarter.

What Wall Street had to say about that

Oppenheimer responded to Enphase's "strong" performance by doubling its price target. Roth liked the company's chances of producing "even stronger" results in Q3, and Craig-Hallum was impressed by the margin that Enphase exceeded estimates.

As for Wainwright, the analyst that actually upgraded the stock today -- well, Wainwright was already pretty optimistic about the company despite its previous neutral rating. The analyst's prior revenue target of $492.4 million for Enphase this year exceeded Street estimates, and now Wainwright is hiking its target even further, saying the company could conceivably do close to $614 million in sales. And "in 2020 and beyond," Wainwright has "expectations of stronger growth" for Enphase.

Profits-wise, Q2 was the third quarter in a row that Enphase delivered positive earnings -- after three straight years of losses. Now, with growth racing higher, StreetInsider.com quotes Wainwright expressing "expectations of consistent profitability in forward periods" -- enough profit to convince the analyst to more than double its price target to what is now the highest estimate on Wall Street: $36.

What to do now?

Now the question is: Should you follow these analysts' advice, or is it too late to buy into Enphase?

That's hard to say -- but I would say that there's at least a possibility it is not too late to buy Enphase, even after its astonishing leap in share price.

Consider: Up until today, most analysts agreed that 2019 would be a profitable year for Enphase, with GAAP profits perhaps approaching $0.54 per share. Now granted, with a stock price close to $29, this means that Enphase is trading for a pretty pricey 53 times earnings -- but only if those earnings come in as expected.

Q2's strong results and Enphase's optimistic guidance for Q3, however, raise the possibility that Enphase could do even better than Wall Street is expecting this year, and in future years as well. Analysts are predicting Enphase could earn as much as $1.62 per share by 2023, according to S&P Global Market Intelligence estimates, tripling 2019 earnings in the space of just four years.

Is that likely? I don't know, but I do know that already today, Enphase's trailing free cash flow ($34.6 million) is three times its GAAP earnings ($10.6 million). If Enphase keeps growing the way it's going, the company could well earn everything analysts are predicting for it -- and more.

In my opinion at least, Wainwright is right to recommend it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.