Solar energy is drawing interest as one of the leading forms of renewable energy. As a result, Sunworks (NASDAQ:SUNW) has been making headlines. First investors are digesting the company’s acquisition by Peck Company Holdings (NASDAQ:PECK). The stock also popped on the rumor that it is going to be a tangential player in the electric vehicle market. Not surprisingly, SUNW stock has reflected this volatility.
Prior to the Peck announcement, the stock jumped from trading under $1 per share to over $4 on Oct. 7. But shares are down from those lows. Part of the reason is that current shareholders are going to get a significant discount to the stock’s price of $2.88 per share (as of this writing).
Sunworks Shareholders Will Take a Haircut
When the sale of Sunworks is complete, Sunworks’ shareholders can expect to receive approximately 0.19 Peck shares. In the interest of accuracy, I’ll share this excerpt from an article by Mark Anderson of the Sacramento Business Journal:
“Based on the Aug. 10 closing price of $4.58 for Peck shares, that implies a valuation of 85 cents for each Sunworks share, which is a 31% discount to Sunworks’ closing share price of $1.24 that day.”
So is SUNW stock an investment worth putting some speculative capital in?
Solar Looks Like a Good Investment
According to the Sun Power World rankings, the combined companies would have been the 16th largest EPC (engineering, production and construction) contractor based on the combined 62,973kW installed in 2019.
Necessity is the mother of invention. The primary driver for solar power at the moment is necessity. California in particular is suffering from rolling blackouts as the state’s electrical grid is overwhelmed.
At the present time, solar still faces a few key obstacles. The first is the ability of certain areas to harness solar energy. Second, is the ability to store it. Solar also needs to become more efficient. Currently, conventional silicon-based solar panels can deliver approximately 33% efficiency.
Despite these obstacles, the market for solar continues to grow. According to Allied Market Research, the global solar energy market will grow from $52.5 billion in 2018 to a whopping $223.3 billion by 2026. That’s a compound annual growth rate of 20.5%.
Aiding this growth will be innovations in solar technology that will make it more cost-effective and attractive for consumers to install. The solar industry will almost certainly get a boost from a Joe Biden administration. However, it appears that the industry has a momentum all its own. That means that I wouldn’t expect the stock to be harmed a great deal should President Trump win reelection.
Will SUNW Stock Become More Attractive?
SUNW stock will become PECK stock when the acquisition is complete. If you own shares in SUNW stock now and believe in the future of solar, then holding on to your shares seems like a prudent strategy. Regardless of who wins the presidential election, the solar energy sector will continue to grow. And becoming part of a larger company should benefit Sunworks in a couple of key ways.
First, with pro forma revenue of $88 million (based on 2019 numbers for each company), the company should have the resources to invest in the new technologies coming down the road. And second, the company should be more efficient in delivering solar today. In fact, the companies have identified approximately $6 million in anticipated annual cost synergies.
Nevertheless, as Will Ashworth points out, Sunworks is a penny stock. And it will still be a penny stock when the acquisition is complete. On the one hand, that makes now a perfect time for speculative investors to buy a stock in an emerging sector. Of course, on the other hand, penny stocks are penny stocks for a reason.
And personally, I’m always a little skeptical when a company lets a rumor such as an EV pivot float out as chum for unsuspecting investors. However, like many renewable energy sources, solar is beginning to make economic, as well as environmental, sense. SUNW stock is not without risk, but it could be a risk worth taking.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
