What happened

Enphase Energy (NASDAQ:ENPH) stock gained more than 10% in morning trading Friday before retreating to about a 3% gain as of 12:40 p.m. EST.

Still, it was the second straight day of gains for the solar power microinverter company, and investors have Wall Street analysts to thank.

Green arrow trending up over the numerals 2021

Image source: Getty Images.

So what

On Wednesday, analysts at investment bank JP Morgan raised their price target on Enphase stock by nearly 50%, from $99 a share to $146. Their buy thesis is that the same alternative energy stocks that performed so well in 2020 will "accelerate" in 2021 (reports TheFly.com) as government subsidies begin flowing to companies that are already doing quite well on a "merit-based" evaluation.

Then on Thursday, peer investment bank Piper Sandler joined the chorus, initiating coverage of Enphase with an overweight rating and an even more optimistic $150 price target. In early afternoon trading Friday, the stock was in the neighborhood of $135. Piper calls Enphase stock a "growth engine" that will continue to enjoy strong momentum in the New Year.

Now what

They're not wrong. After burning cash for three straight years, Enphase finally turned cash-profitable in 2018, then GAAP profitable in 2019. Over the past 12 months, the company has racked up GAAP profits of $178 million and positive free cash flow of $215 million. (In other words, the business is even more profitable than it looks).

The only question now is whether Enphase stock, at a valuation of 82 times free cash flow and 99 times reported earnings, is too expensive. Given its projected long-term earnings growth rate of 35%, Wall Street this week has decided it is not.

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.