SunPower (NASDAQ:SPWR) stock is a great way to support the planet. But over time, it has been a bad investment.
That’s because solar power is like open source software. The primary benefits go to the users. They go to the electric grid, where power prices are falling, margins on it are rising, and supply is growing more flexible.
The reason is deflation. Today’s panels supply more energy at less cost than panels did a few years ago. If you were bought panels a decade ago, on a power purchase agreement (PPA), they may hurt the value of your home today.
But as prices continue to plunge, below the cost of fossil fuels, and grid power becomes less reliable, that may be changing.
Swanson’s Law
That’s SunPower’s hope, and it’s still a cheap stock. At its current price of nearly $24 per share, SPWR stock has a market cap of just $4.1 billion. It sells for only 9x earnings. It is finally delivering a return to TotalEnergies (NYSE:TTE), the French oil company that bought a majority stake in it nearly a decade ago.
Solar power has its own version of Moore’s Law, which has been driving deflation in computing for over a half-century. This is Swanson’s Law, named for SunPower founder Richard Swanson. It holds that prices drop 20% for every doubling of shipping volume.
With solar now cheaper than fossil fuels, SunPower thinks it can finally see the light of profit from Swanson’s Law.
The Turn to Homes
SunPower panels today cost about $1.50 per watt. They’re efficient and durable but cost twice as much as competitors. It’s why SunPower has turned back to the residential market in its search for profit. Panel costs can be folded into a larger sale, which includes installation. In the utility market, price matters and inefficient panels can be easily replaced once written off.
SunPower announced Oct. 7 it is buying Blue Raven, a residential panel installer active in the Pacific Northwest and mid-Atlantic, for $165 million in cash. The deal gives SunPower geographic diversity.
SunPower notes that only 3 million homes have solar panels now, but that number is expected to reach 100 million. Given the lower cost of today’s panels, they’re now more profitable to homeowners. They can be replaced once they’re paid for with cheaper panels.
What About Shareholders?
As it advances in residential solar, SunPower is selling its commercial and industrial business. It previously spun off manufacturing into Maxeon Solar Technologies (NASDAQ:MAXN). It’s also selling a stake in Enphase Energy (NASDAQ:ENPH), which makes solar inverters that turn the DC power of panels into the AC power used in homes.
The Blue Raven announcement should lift the stock. Shares had been falling steadily since February, after an interest rate induced run-up that took them from single digits to a high of nearly $50. The new trading range, between $20 and $25, means a loss for those who bought in February, but a 100% gain for those who have been in the stock a year.
Tomorrow’s SunPower looks like Sunrun (NYSE:RUN), a rival in residential solar. Sunrun could grow its sales by 50% this year, to $1.5 billion. But financing costs mean it usually carries losses, about $65 million in the first two quarters. Sunrun gets financing cash flow to compensate. Think of it as a solar bank.
The Bottom Line on SPWR Stock
Solar panels are cheaper than coal. The market is going to grow. SunPower will be a part of it.
In past years big gains have gone to the parts makers, like Enphase, which serve all solar markets. Utilities that buy solar power, like Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), through its energy division, have benefited from lower costs.
With panels becoming more profitable to homeowners, SPWR stock hopes it can finally get in the win column.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
