One analyst covering the solar-inverter maker
believes it is time for investors to grasp at a “falling knife.” It sounds like a bad idea, but it might not be as dangerous as it sounds.
Monday, Raymond James analyst Pavel Molchanov upgraded shares of Enphase (ticker: ENPH) to Buy from Hold. He says the price could rise to $225 a share, while he didn’t have a price target when he rated the stock at Hold.
The bullish call lifted Enphase stock by about 1.4% to $186.19 in premarket trading on Monday. Futures on the
were both down about 0.1%.
“We are turning positive on Enphase for the first time since 2013, i.e., ancient history by solar industry standards,” wrote Molchanov. “Amid the broader market’s risk-off trade, we are trying to catch a proverbial falling knife.”
On Wall Street, trying to catch a falling knife means to buy a stock that is dropping rapidly, the logic being that both are equally risky. Coming into Monday trading, shares were off about 31% so far this year. The S&P 500 was up about 2% so far in 2023.
Grasping for sharp-edged objects seems like a bad idea, but according to Molchanov, the risk is worthwhile. The stock is “no longer priced for perfection,” the analyst said, pointing out that Enphase share now trade for about 24 times the per-share earnings expected for 2024 earnings, the lowest relative to the coming year’s profits since 2020.
A year ago, Enphase shares traded for more than 40 times estimates 2023 earnings. The stock historically has received a high multiple from investors because earnings are growing rapidly. Enphase earned $4.62 a share in 2022, up from $2.41 in 2021. Per-share earnings in 2023 and 2024 are expected to come in at $5.47 and $7.30, respectively.
There is another reason for the upgrade, beyond stock market valuation: Enphase’s evolving sales mix. About 25% of sales should come from Europe in 2023, up from about 19% in 2022. Molchanov prefers clean-energy companies with more European business, saying it is less volatile than clean-energy business tied to the U.S.
With the upgrade, 72% of analysts covering the company rate the shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
The average analyst price target is about $297 a share, roughly 60% above from recent levels. That is a big implied jump and reflects how Enphase stock has struggled lately.
The stock’s drop early this year brought it low enough for Molchanov to step in and recommend the shares.
Write to Al Root at email@example.com