Embattled solar energy development specialist Sunworks (NASDAQ:SUNW) — which serves both the residential and commercial markets — filed for Chapter 7 bankruptcy on Monday. Almost certainly, the move represents the end of the enterprise. Nevertheless, speculators apparently see a quick scalping opportunity before the doors finally close on SUNW stock.
According to Solar Power World, the bankruptcy filing calls for Sunworks’ assets to be liquidated. The company’s executives have also transferred company authority to the presiding bankruptcy court. Following a stratospheric spike in market value in early 2021, SUNW stock struggled mightily for traction. Even including the skyrocketing performance on Friday, shares have lost around 93% of equity value.
Further, the company’s third quarter of 2023 earnings results appeared to have been the final nail in the coffin. In the disclosure, Sunworks reported a nearly 30% revenue decline from the prior year. Following the earnings print, CFO Jason Bonfigt and Chief Legal Officer Christopher Monahan submitted their resignations.
Barring an unusual development, the bankruptcy filing signals the end for SUNW stock and three underlying subsidiaries. The Financial Industry Regulatory Authority (FINRA) pulls no punches regarding a Chapter 7 filing, labeling the move “the more nuclear option.” Essentially, the issuing company stops operating, and all its assets are put up for sale by a court-appointed trustee.
Contrarian Scalpers See One Last Hurrah for SUNW Stock
Under any other circumstance, a Chapter 7 bankruptcy represents bad news for shareholders. More than likely, the impacted securities will become worthless. It’s also unlikely that shareholders will be able to recover any of their investments. So, the question begs, why are people bidding up SUNW stock? It’s likely due to a profit-scalping attempt.
Earlier Friday, Sunworks saw its market value jump 200% against the prior session. At the time of writing, the extreme sentiment faded noticeably, with SUNW stock up “only” 131%. Historically, it’s not unusual to see counterintuitive trading following a long decline, known as a dead-cat bounce. Also, amid the euphoric contrarian phenomenon that characterized much of the post-pandemic trading action, even bankruptcies can attract speculators.
Back in 2022, meme stock traders rushed into cosmetics firm Revlon after the embattled business filed for bankruptcy. However, the key difference is that Revlon filed for Chapter 11 bankruptcy, which offered operational flexibility.
As for SUNW stock, earlier in the Friday session, Fintel’s options flow screener — which focuses exclusively on big block trades — recorded a transaction for 841 contracts bought of the SUNW Feb 16 ’24 0.50 Call. At the time of the trade, shares saw a price of a bit over 17 cents. SUNW peaked at 21 cents today.
Later, in the early afternoon session, Fintel recorded 675 contracts sold of the SUNW Sep 20 ’24 0.50 Call. By the time the ink dried on this trade, SUNW fell to 13.9 cents.
Why It Matters
Interestingly, Fintel also reports that the short interest for SUNW stock lands at 13.09% as of its float. While elevated, it’s not particularly remarkable, especially compared to prime short-squeeze candidates. Also, the short interest ratio sits at only 0.15 days to cover. That means the bears can unwind the entirety of their exposure — based on average trading volume — within an hour.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
