Sunworks (NASDAQ:SUNW) almost had to sell itself to another solar power installation company. But the merger fell through and on Dec. 7 the company just announced it raised a pile of cash and paid off its debt. Therefore, SUNW stock now has a new lease on life and its investors can look forward to a potential upside.
That assumes the company can finally decide to run a profitable company.
Sunworks provides high-performance solar power systems for agricultural, commercial, and industrial and public clients in the U.S.
The problem is the company was running out of money and installations were falling due to Covid-19 lockdown restrictions.
They were almost forced to have to do a merger with another company. As of Sept. 30, Sunworks had just $4.6 million in cash, but $12.8 million in current liabilities. This included $2.2 million in current promissory notes.
A Closer Look at SUNW Stock
The problem was the company posted a $2.8 million loss in Q3 and over $7.2 million in cash flow losses for the 9 months ending Sept. 30. It was running out of liquidity and burning too much cash. Moreover, its debt was due. A merger with another larger company looked like the only out.
But on Dec. 7, Sunworks announced it had raised $20 million in gross proceeds from an “at the market” offering of equity. The price was not discussed, but it clearly must have been at a discount.
For example, SUNW stock is down from a peak of close to $7.00 at the end of November. However, on Dec. 7 the stock moved up substantially on the announcement to close at $4.87 per share. Today it’s sits a just around $4.30.
Part of the reason for this was that Sunworks was also able to completely pay off its debt. Therefore the company now has a new lease on life, so-to-speak, with the cash raise, debt release and merger walk.
Sunworks Stock Owners Upside
Sunworks now has a market capitalization of at least $105 million. I estimate includes at least 5 million more shares for a total of 21.5 million, with this new capital raise.
Moreover, the company now has probably about $17 to $17.5 million in the bank, after the debt paydown, but before this quarter’s losses.
The company’s business plan likely rests on an assumption that business will return to normal as lockdown restrictions begin to ease next year.
The hope is that solar installations from industrial and public organizations will pick up and large enterprise-scale solar works will take off. Its business depends on scale and large orders.
The problem in the long run though is that the company has never proven its business model. It has not yet been profitable in the last 5 years. The last time the company turned a profit was in 2015. If its business model was really profitable it would have happened by now.
What To Do With SUNW Stock
That’s great that the Sunworks now has a new lease on life. Apparently, the board is also seeking a new CEO. That is what Sunworks said in their update announcement on Dec. 7. If I were on that board, I would make it clear that the company has to attain profitability with the $20 million.
Otherwise, they are wasting their shareholder’s time and equity. Sunworks stock may be up since November on the feeling that the new Biden Administration will provide incentives for huge new solar installations.
That could happen, but I would not count on it reviving Sunworks stock. What the company needs now is a clear plan of action that leads at least to EBITDA (earnings before interest, taxes, depreciation, and amortization) profitability. That way it can receive a valuation based on profitability.
But until that happens, until the company has a clear path to profitability, most investors should stay away from Sunworks stock. Otherwise, it will just run through this new lease on life with nothing to show for it.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
