This past year was a sizzling one for shares of SunPower (NASDAQ:SPWR). And the early action in 2021 has continued to be hot, albeit volatile. But in front of earnings is SPWR stock worth buying? Let’s take a look at what’s happening off and on the price chart, then offer a risk-adjusted determination for today’s investors.
Tesla (NASDAQ:TSLA). Enphase Energy (NASDAQ:ENPH). Blink Charging (NASDAQ:BLNK). First Solar (NASDAQ:FSLR). Plug Power (NASDAQ:PLUG). Alternative energy stocks of all types enjoyed terrific favor on Wall Street in 2020. And SunPower was up there with the best of them as shares gained more than 430%. Moreover, that bullish trend has continued to persist.
In front of Wednesday night’s earnings report SPWR stock is up nearly 83% on the year. And just a couple short weeks ago, the stock was up as much as 120%.
So, what gives? There’s a couple bullish tailwinds to be certain. Reduced costs and technological innovation within the solar industry are challenging fossil fuels for market share on the power grid. That’s a broad-based positive of course. SunPower has also smartly pivoted from a solar panel supplier for residential and utility markets into a vertically-integrated financing and power sales business.
Also working in SPWR’s favor, today’s much friendlier U.S. administration is committed to improving this country’s carbon footprint. Along those lines and just over a week ago a bill was introduced to the House Ways and Means Committee. And according to Roth Capital the bill had the look of a slimmed down Green Act. If passed in the coming months, it could prove a huge positive catalyst for SPWR and its peers. But what about today or rather tonight?
SPWR Stock Weekly Price Chart
Source: Charts by TradingView
By the numbers, Wall Street expects SPWR to turn a profit of 11 cents per share on sales of $354 million when it reports its Q4 results Wednesday evening. The forecast reflects a drop of nearly 27% from last year’s, same quarter earnings. Revenues are expected to contract by an even larger 41%. The positive, if any, is both the top and bottom-lines are turning a corner higher after a couple quarters of declines.
Of the 14 analysts offering price targets on SunPower shares, the median 12-month estimate rests at $24, while the range stretches from $12 to a group high of $39.60. At the same time, the solar outfit maintains nine “hold” recommendations, three “sell,” one “underperform,” one “outperform” and just two recommend “buy.” There’s not a lot of love coming from Wall Street. However, on the price chart, technically SPWR stock looks well-positioned for new highs in 2021’s first half.
As a standard benchmark for stocks of SunPower’s caliber, a decline of 30% or greater following a sizable rally is common. And since hitting its intermediate high the week of Jan. 25, at their weakest, shares of SPWR have given back a picture perfect 30%. That’s good news irrespective of what earnings purports to reveal.
The second bit of supportive price information we’re seeing is SPWR stock’s correction appears to be forming a triangle consolidation pattern. Formations of this kind generally favor continuation moves out of the congestion. And with SunPower’s uptrend intact, an upside breakout from the triangle and new highs hold a technical edge.
Ideally, I’d like to see more price confirmation before entering into a long position. Stochastics is nearly oversold but hasn’t flattened, let alone bullishly crossed over. That’s a mark against ownership of SPWR stock right now. Secondly, shares remain inside the triangle without hinting at any sort of candlestick bottoming just yet. Of course, earnings could upend today’s challenges, literally and figuratively, overnight.
The Bottom Line
If you’re up for the double-edged risk of holding a volatile stock through earnings, you could do worse than SPWR. But in light of today’s modest deficiencies and to ensure you also do better than stock traders on a risk-adjusted basis, I’d suggest exposure using an intermediate-term out-of-the-money bull call spread.
One favored position of this type which looks well-aligned with the risks and potential rewards facing SunPower, off and on the price chart, is the June $55/70 call vertical for up to $3.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in PLUG and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.