Shares of SunPower (NASDAQ:SPWR) are up more than 523% in the past year as of Feb. 1. Some of that SPWR stock gain has been fueled by solar energy support by the Biden Administration.
Yet the company is still is in dire straits. Management announced the closing of a major plant and will sack 170 people, more than 10% of its workforce. Orders from international customers for the firm’s solar power panels and systems just don’t justify keeping the Hillsboro, Oregon manufacturing facility open.
That does not bode well for SPWR stock after its recent spike.
Cash Burn Everywhere
This is going to cost the company $10 million to $12 million, according to its 8-K filing. The problem is the company can’t really afford this payout. It is burning cash like never before.
For example, in its latest 10-Q report, SunPower showed negative $202.5 million in cash flow from operations (CFFO) for the nine months ending September 2020. On top of that, it paid out $13.1 million in capex and $5.4 million in solar acquisitions. That pegs its burn rate at $221 million.
That took its cash down to $350 million as of Sept. 30 from $459 million at the beginning of 2020. Since then, the company redeemed a huge portion of its convertible notes for $239 million. Moreover, it likely burnt through another $74 million or so in the fourth quarter, although we won’t know until it reports Q4 numbers.
That means its cash position could be down to $37 million unless it borrowed a pile of money in Q4.
So why is the SPWR stock up so much when the company is going through difficult financial times? More importantly, why hasn’t management sold equity shares to the public at these inflated prices? They could easily have done a secondary equity offering by now to help alleviate their debt and cash flow position.
Maybe I am missing something, but it seems to me that management is asleep at the wheel here. If your stock spikes 100% in the space of one month on nothing more than speculation that your business will pick up for political reasons, you should sell shares to cement your financial situation. After all, the dilution will be much less than if they had to do this earlier.
What Analysts Are Saying
Piper Sandler analyst Kashy Harrison downgraded SPWR stock from overweight to neutral at the end of January. In Wall Street-speak, that is the same as a “sell” in real-people language.
The analyst’s target price is still at $35, but that represents a 28% drop from its price as of Feb. 1 of $48.69. Moreover, the analyst said this was a “retail-driven move” on high short-interest stocks as nothing “thematically meaningful has manifested more recently capable of warranting this magnitude of outperformance.”
Again, in real-people language, it’s up on pure speculation and nothing fundamental has changed with the underlying business to warrant this spike. That’s code for Sell, sell, sell, in Squawk Box terms.
The reason SPWR spiked recently relates to short-selling squeezes, just like at GameStop (NASDAQ:GME). For example, Barron’s recently listed SPWR stock as one of the top 10 most shorted stocks in the Russell 1000 index. Senior writer Avi Salzman implied on Jan. 26 that SPWR could become another GME stock situation — where investors pushed it up in a short-squeeze situation.
However, I am somewhat doubtful this will happen. For one, the company has made a pretty significant dent in its debt. And, if management has any brains at all, they will issue shares now in a secondary offering and try to take advantage of this spike in the shares.
What To Do With SPWR Stock
This is a speculative and volatile situation. Don’t buy SPWR stock thinking another short squeeze will ensue. The company is highly likely to do a secondary offering any day now… if they are smart.
That will shore up their financial situation and prevent the company from teetering into bankruptcy. They probably are not close to that in any case, even though I forecast that their cash position is now low. They could easily have borrowed more money.
Finally, the big question is “when is the company going to get profitable?” Analysts should press hard on that during the Feb. 17 earnings conference call. With the new Administration banking heavily on green energy, SunPower should be able to pick up some large contracts.
Therefore, let the buyer beware. SPWR stock is likely to be extremely volatile from here on out.
On the date of publication, Mark R. Hake did not hold a long or short position (either directly or indirectly) in any of the stocks in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
