California-centric solar power system supplier Sunworks (NASDAQ:SUNW) has earned celebrity status among the trading community in 2020. With an incoming presidential administration that’s likely to be solar-friendly, investors should expect the daily trading volume of SUNW stock shares to remain in the millions.
SUNW stock is part of a solar sector that’s done well this year overall. As evidence of this, we can note that the Invesco Solar ETF (NYSEARCA:TAN) has more than doubled in 2020 so far.
That’s pretty impressive in a year that included the global Covid-19 pandemic.
According to Sunworks, solar is on track to account for more than half of all new electric capacity. Yet, solar power makes up less than 2% of the power generated in the United States. So, the potential for growth is definitely there.
However, there have been doubt and disappointment surrounding Sunworks recently. Some investors might even be tempted to bail on SUNW stock now. So, what’s all the fuss about, and will the pros outweigh the cons for this white-hot solar contender?
A Closer Look at SUNW Stock
Technically, as of Dec. 11 SUNW stock was still considered a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share.
As such, SUNW stock is prone to outsized price moves, both to the upside and to the downside. For instance, on Dec. 11, SUNW shares shed 6% of their value and that was just a typical day.
Notably, SUNW stock has trailing 12-month earnings per share of around -$1.16. I’ll admit, that’s not a great sign for a stock that’s trading at $4 and change.
Consequently, even if you’re bullish on the solar market generally, it’s wise to keep your position in SUNW stock fairly small. The stock is prone to volatility, and the company still needs to work towards positive earnings on a per-share basis.
A Merger Denied
As I learned from InvestorPlace contributor Todd Shriber, Sunworks was the subject of a failed acquisition bid by Peck Company Holdings (NASDAQ:PECK) which would have been worth $14.1 million.
That capital could have helped Sunworks to clear its order backlog. Nonetheless, only 26% of the shareholders at a special meeting voted in favor of the merger.
Sunworks Chairman of the Board Chuck Cargile was understandably disappointed.
“We believed that this merger would have been the best long-term option for Sunworks and would have provided the best outcome for stockholders,” he said.
But then, this story’s ending might not have been written yet as Cargile added, “We will continue to have strategic discussions with the Peck leadership team to determine if there are other ways for us to work together to benefit from the many synergies identified in this planned business combination.”
Strengthening the Balance Sheet
Interestingly, over the following couple of weeks, SUNW stock traders shook off the disappointing news and sent the stock to its 52-week high.
If SUNW investors are willing to look beyond the failed Peck takeover bid, I don’t blame them for their optimism. Sunworks’ capital position is strong enough now to advance the company’s objectives, Peck or no Peck.
To firm up its balance sheet, Sunworks took matters into its own hands and raised approximately $20 million through a common-stock sale.
With this, Sunworks has managed to pay off its roughly $2.7 million debt to CrowdOut Capital.
As Cargile explains, this represents a big step forward for Sunworks, fiscally speaking.
“We have successfully bolstered our balance sheet, eliminated costly debt, and strengthened our working capital position,” he said. “Better positioning us to navigate the COVID-related challenges impacting our operations, our industry, and the economy as a whole.”
The Bottom Line
Going forward, SUNW stock holders should watch closely to see what the company does with the rest of that $20. Hopefully, they’ll use it wisely.
In the final analysis, perhaps the shareholders were absolutely right to vote against the Peck acquisition bid. At least now, Sunworks will struggle or thrive on its own, and there’s something to be said for that.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
