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.

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