Sunworks (NASDAQ:SUNW) stock is one of the most unpredictable ones on the Nasdaq lately. Shares have traded between 30 cents and $8 in recent months. There are mergers, lawsuits, potential business strategy shifts, and an election angle, among other developments. For a trader, SUNW stock has it all.
With shares now around $3, still up 10x off the lows but down two-thirds from the recent high, is this a big dip-buying opportunity? Or should you head for the exits while the stock is still on the move? Here’s the pertinent information to consider.
Sunworks: A Company In Transition
Sunworks is a small company. The company has a market capitalization of $51 million, earned revenues of $53 million over the past 12 months, and generated a modest loss in the course of doing that business. Despite those figures, Sunworks has big ambitions. It’s already a meaningful player in the residential solar installation space. Beyond that, it also has offerings for solar applications in industrial, agricultural, commercial, and public works uses as well.
Given that SUNW stock had fallen from $20 five years ago to as little as 30 cents this year, however, the business strategy hadn’t been too successful. Thus, the company is now making some moves. For one, it agreed to merge with Peck Holdings (NASDAQ:PECK), another solar installer, earlier this summer.
Pivot To Electric Vehicle-Related Technology?
Things went crazy with SUNW stock last month, when shares shot up as much as 300% in one day. This appeared to be based on rumors that Sunworks and Peck might make a move into electric vehicles. Tesla (NASDAQ:TSLA) is splashing a ton of money on lithium, batteries, and other green technologies. This has caused shares of SPI Energy (NASDAQ:SPI) and other related names to surge. Traders have bet on a similar move out of Sunworks.
Last month, our Sarah Smith rightly warned that SUNW stock traders should be: “Be incredibly cautious with this news. There is no press release or any formal announcement of its EV plans. Rumors alone — and a lot of hope — are driving the action in Sunworks.”
Not much has changed in the interim. At this time, it’s still unclear whether Sunworks has anything firm in mind to cash in on the current enthusiasm for the space.
Will The Peck Deal Close?
The merger between Peck and Sunworks hasn’t closed yet. This adds to the drama around SUNW stock. Peck is offering 0.18 shares of its own stock for every share of SUNW stock. This implies that each Peck share should be trading for 5.4x the value of every SUNW share. Instead, however, the market is pricing Peck at about just 2.5x the value of Sunworks. This implies that the deal isn’t likely to close and/or that the price will have to be changed to satisfy shareholders.
On that point, some shareholders are not happy with the proposed merger. Bloomberg Law reported that investor Gustavo Vieyra is leading a class action lawsuit. The suit says that Sunworks misrepresented its financial situation. Only by doing so did it create the opportunity for Peck to acquire Sunworks on the cheap. According to Vieyra’s explanation, Sunworks is potentially worth more as a standalone entity.
This could go either way for SUNW stock owners. It’s good news to have an activist shareholder fighting for a better deal. On the other hand, if Vieyra’s interpretation of the situation is correct, it could indicate some governance problems with Sunworks as well. Ideally management shouldn’t need a lawsuit to motivate it to do the best for its shareholders.
SUNW Stock Verdict
This is a messy situation on multiple fronts. And where there’s uncertainty, there’s plenty of trading opportunity. If you like to make day trades or short-term swings, SUNW stock could be an ideal vehicle. Heading into the election, at a minimum, there could be a powerful bid for solar stocks as the market looks forward to a potential Joe Biden victory.
On the other hand, use solid risk management and keep a close eye on any potential trades. If the EV-related rumors don’t come to fruition or something goes wrong with the Peck merger, shares could move sharply lower. President Trump winning re-election would also dump a bucket of cold water on all the solar stocks, including Sunworks. Thus, if you want to trade SUNW stock, make sure to keep it on a tight leash.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.