Post-election, it’s no shock solar plays like Sunworks (NASDAQ:SUNW) went parabolic. But, after falling back since last month,SUNW stock may have flown too close to the sun.
With short-term investors cashing out, shares have pulled back from more than $8 per share, to just above $4 per share.
Yet, although it’s seen a big decline, the jury’s still out whether prices will head lower from here. Or, if further progress on “green” initiatives by the incoming Biden administration gives solar stocks additional runway.
One things for sure: you can chalk up most of this stock’s impressive run to speculation, not material improvements to its operations. With projected top line growth of just 18.7% in the coming year, there’s not much to justify its substantial run-up, even if shares have pulled back nearly 50% off their highs.
That being said, I wouldn’t bet against it. As current trends favor the shift from traditional electricity sources to more “green” alternatives like solar, this company’s long-term potential is much greater than the aforementioned sales growth projections.
Even so, buying now, while shares remain inflated by enthusiasm for “green” stocks, may not be the best move. Sit tight for now, as a more favorable entry point could be just down the road.
Why SUNW Stock Soared in November
It’s safe to say last month’s run-up was nearly all due to speculation over potential “green” policy changes by President-elect Biden. As InvestorPlace’s Sarah Smith wrote Nov. 23, other than this factor, there wasn’t much news out of the company in November.
If the deal had gone through, holders of SUNW stock would have received .185 shares of PECK stock, or around $1.50 per share, based on Peck’s early November stock price.
With this deal price well below its share prices, it’s easy to see why investors held off on biding Sunworks stock further, even in the days following Biden’s victory. But, with the deal off the table Nov. 13, shares went parabolic, more than doubling in a matter of weeks.
But, as seen from its performance since Thanksgiving, it’s clear many have decided to take the money and run. Could this continue as we enter the new year? While it has long-term trends on its side, that may not be enough to prevent shares from heading lower in the near-term.
SUNW Stock Could Still Head Lower
At first glance, it’s easy to write off this “story stock” as all sizzle and no steak. With declining sales since 2016, and continued heavy losses, its fundamentals don’t really match up with its current valuation.
Yet, as InvestorPlace Senior Investment Analyst Luke Lango detailed on Nov. 6, Sunworks has many long-term trends on its side. Between government mandates, falling costs, and improving technology, things could just be getting warmed up for solar panel installation company.
But, that does not guarantee additional upside for SUNW stock in the near-term. How so? Given the recent solar stock mania, its future potential could be more than reflected in its current share price.
The “story” behind this “story stock” is years in the making. It’ll take a few years for current megatrends to pay off. In the near-term, future price action hinges on whether retail investor interest in solar stocks can continue, or whether enthusiasm will fade further as another “hot” sector becomes the new “flavor of the month” among the Robinhood trading community.
If solar stock mania dissipates, shares will continue to trend lower. At least in the near-term. Yet, it’s not all bad news if this winds up happening. Why? It could mean a more favorable long-term entry point for Sunworks stock.
A Great Long-Term Opportunity
Shares may look more likely to head lower than higher in the near-term. But, I wouldn’t go short at today’s prices. If the incoming Biden administration fast implements policies favored by the solar industry, speculators could take the news, and use it to justify sending shares parabolic yet again.
With this in mind, shorting it at around $4.30 per share, in the hopes shares fall back below $2 per share, isn’t worth the risk. Shares could easily soar to double-digits as “green wave” speculation continues. But, this factor hardly justifies buying it at today’s prices. Priced on its future potential rather than its current financials, buying at today’s prices is more gambling than investing.
Yet, a favorable entry point could be just around the corner. At much lower prices, the risk/return proposition is more in your favor. But, until that happens, stay on the sidelines with SUNW stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.