Every few years, Wall Street witnesses a gold rush and the rising tide in a sector lifts almost all stocks in the industry. This has been the year of electric vehicles (EVs), and investors in SPI Energy (NASDAQ:SPI) stock have benefited from this increased risk appetite. Year-to-date, SPI Energy stock is up around 370%.
Investors now wonder if they should invest in SPI stock at these levels. Despite its gains, SPI is a risky play and investors should hold off on buying.
The Recent Roller-Coaster Ride
The 52-week range for SPI shares has been 55 cents (March 19) and $46.67 (Sept. 23). Now, the stock is just over $9. Let’s take a look at the recent price action.
On Sept. 22, SPI Energy stock closed at 98 cents. The next day, it opened at $3.54 and hit $46.46 intraday. The surge on Sept. 23 occurred as the Hong Kong-headquartered SPI Energy announced it would launch EdisonFuture, a wholly-owned subsidiary, to develop EVs and charging stations.
Although the company did not give any details other than a brief announcement, shares initially went for the skies during the day, but later closed at $14.
Yet, by Oct. 14, SPI Energy stock was down to $7.18. The next day came another company announcement. Management said EdisonFuture now had an agreement with Shaanxi Tongjia Automobile, a manufacturer of all-electric logistic vehicles in China. Edison Future will become the exclusive North American distributor of EVs currently produced by Tongjia. The two companies will also cooperate to build EVs together in Fresno, California. Following the news, SPI stock hit an intraday high of $12.38.
Some investors are ready to buy shares of any company that has even the remotest connection to EVs and alternative energy sources, without doing much due diligence. A recent industry report highlights, “By 2022 there will be over 500 different EV models available globally.” Market participants are looking for the next Tesla (NASDAQ:TSLA) stock, which is up over 400% so far this year.
Caution for SPI Stock
SPI manufactures and markets solar photovoltaic (PV) energy solutions for a range customers in the U.S., Europe, Japan and Australia. On June 29, it filed with a report with the U.S. Securities and Exchange Commission that included a dire warning.
“We incurred net losses of $91 million, $12.3 million and $15.1 million in 2017, 2018 and 2019, respectively. We had an accumulated deficit of $585.4 million as of Dec. 31, 2019. We also had a working capital deficit of $113.5 million as of Dec. 31, 2019. In addition, we have substantial amounts of debts that became due in 2017, 2018 and 2019. … “If we do not effectively manage our cash and other liquid financial assets and execute our liquidity plan, we may not be able to continue as a going concern. … We are in default on a number of our obligations, which could result in our being forced to cease operations if we are unable to reach satisfactory settlement with applicable counterparties.”
In the rest of the report, paragraph after paragraph, management tells potential investors all the risk factors they are facing and, in effect, why they should not invest in the business.
The Bottom Line
Until a few weeks ago, SPI Energy’s market capitalization was around $18 million, and it was not a household name among many investors. Then management made two announcements that pushed SPI stock to multi-year highs.
However, we have no details as to how or when the proposed projects will start or continue. What is more important is how will the company pay for these moves when it is currently burning through cash as if there is no tomorrow?
The EV hype has been fueling this rally. Yet unless management releases clear plans and financial metrics to support the new projects, investors should stay clear off SPI Energy stock. Those investors who are sitting on some healthy profits may want to take money off the table.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.