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HomeFinanceHere's your warning: Enphase stock ready to rally

Here’s your warning: Enphase stock ready to rally

Key points

  • Stocks are jumping this week on recovery potential.
  • They still have a long way to go, but the prospects are as bright as they have been in months.
  • Look for stocks to consolidate recent gains before taking advantage next week.
  • 5 stocks we like better than Enphase Energy

It’s only been three weeks since we called. Enphase Energy Inc. NASDAQ: ENPH an “under-the-radar energy stock” with a ton of potential, and we’re already being proven right. After spending almost all of last year being beaten by the bears, the year-end rally that began in November has added new fuel.

The solar equipment stock reported its fourth-quarter earnings earlier this week. While it fell short of analyst expectations for earnings and revenue, the bullish outlook shared by management did more than enough to make up for it.

Revenue was still down 58% year over year, and Europe revenue was down 70% from the previous quarter. However, anyone involved with Enphase knows that he is embracing the turnaround story that is just beginning.

Much of the downside has been industry-specific, as residential solar demand struggles to return to its previous highs. The global cost of living crisis has recently exacerbated this slowdown, and consumers are tightening their belts and trying to make ends meet.

Bearish headwinds

When times are tough, alternative and renewable energy remains a luxury, so people will return to the old reliable resources: oil and gas. But with interest rates set to fall and consumer confidence at multi-year highs, the outlook is suddenly much brighter for Enphase. Enphase stock has only just begun to bottom after its 80% drop.

With factors in place to drive a return in demand, this suggests there is plenty of upside potential that Wall Street is already starting to take advantage of. Enphase shares rose nearly 25% on Wednesday on comments from CEO Badri Kothandaraman, who told investors that “we think the first quarter could be the lowest quarter.” They are already starting to see signs of recovery in Europe and expect non-California states to “recover quickly.”

Oppenheimer’s team immediately upgraded its rating on Enphase shares due to the improving outlook, raising it to an “outperform” rating with a $133 price target. It echoed the move by Roth MKM, which boldly reiterated its “buy” rating ahead of this week’s report. Roth MKM gave Enphase shares an even higher price target of $140, which, even accounting for this week’s jump, points to an immediate upside of at least 20%.

Involved

It’s always interesting to see how much weight Wall Street places on expected future performance versus actual past performance. This is especially true for growth stocks like Enphase, which have all their potential ahead of them and have yet to be realized. With stocks generally enjoying a great couple of weeks and investor sentiment firmly in the risk camp, there’s a lot to like about Enphase right now.

It’s worth noting that the stock struggled to build on Wednesday’s gains in yesterday’s session, so staying above the $115 level heading into the weekend will be critical. If you start giving up on these gains, the recovery story becomes much harder to visualize, and likely means it takes an earnings report that completely crushes expectations to turn things around.

But in the meantime, investors should expect stocks to continue consolidating off of this week’s gains, with fresh bullish moves likely to form in the coming sessions as hopes for a banner year rise. We’ve seen how quickly Enphase’s revenue and, in turn, its stock can take off when conditions are right, and it looks like we’re getting there.

Before you consider Enphase Energy, you’ll want to hear this.

MarketBeat daily tracks Wall Street’s top-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Enphase Energy wasn’t on the list.

While Enphase Energy currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

See all five stocks here

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