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Why Enphase Energy Stock Popped 5.5% This Morning

By Rich Smith – Jul 27, 2020 at 12:21PM

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Roth Capital disagrees that Enphase is a "short" -- but does its argument hold up?

What happened

Bad news -- shares of solar microinverter-maker Enphase Energy (ENPH 2.45%) dropped several percent Friday after a lackluster analyst report from JMP Securities dampened investor enthusiasm about the stock's valuation.

Great news -- it's not Friday anymore, and Enphase investors are getting back some of the money they lost -- at least 2%.

You can thank the friendly analysts at Roth Capital for this.

Man in suit showing two thumbs up

Image source: Getty Images.

So what

Shares of Enphase Energy leapt 5.5% in early trading Monday and are hanging on to about 2.2% of those gains at 11:10 a.m. EDT. Credit for the stock rally goes to Roth Capital, which this morning upped its price target on Enphase shares from $60 (very close to where it trades today) to $70 a share, reports TheFly.com.

As Roth explained in its note, there's a "specious" report on Enphase floating around somewhere in the ether (probably the one discussed here) recommending that investors "short" shares of Enphase. But the report is wrong on its facts, and Enphase, continuing to show strong fundamentals, has recovered its losses since getting hammered in June.

Now what

Roth expects these share price gains to continue, although to be honest, even Roth wonders if the stock isn't getting close to its top already, now that it's trading close to 40 times projected 2021 earnings.

That's a curious comment to append to a report in which Roth predicts a $70 stock price for Enphase. When you consider that this year, analysts are forecasting only about $1.08 per share in profits for the company, $70 a share works out to a valuation of about 65 times earnings. Even if analysts are right and Enphase grows earnings 38% next year (to $1.49 per share), well, 38% growth is great, but it might not be enough to support a P/E ratio of 47.  

I kind of wonder if Roth might have been better just sticking with its previous price target on Enphase, rather than climbing out on a limb and predicting the stock is going to get even more overvalued than it (arguably) already is.

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.

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