Can SunPower Continue This Explosive Move?

With shares of SunPower (NASDAQ:SPWR) trading around $18, is SPWR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

SunPower is a vertically integrated solar products and services company that designs, manufactures, and delivers solar electric systems worldwide for residential, commercial, and utility-scale power plant customers. The company operates in two business segments: the Utility and Power Plants Segment and the R&C Segment. It serves investors, financial institutions, project developers, electric utilities, independent power producers, commercial and governmental entities, production home builders, residential owners, and small commercial building owners through its third-party global dealer network. Through its operations, it is able to fulfill an increasing demand for an alternative energy source.

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T = Technicals on the Stock Chart are Strong

SunPower stock has part of a multi-year downtrend that extends back to late 2007. The stock is now attempting to break higher and change its trend. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, SunPower is trading above its rising key averages which signal neutral to bullish price action in the near-term.

SPWR

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of SunPower options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

SunPower Options

77.35%

23%

21%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on SunPower’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for SunPower look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

31.34%

-28.78%

89.12%

52.98%

Revenue Growth (Y-O-Y)

28.60%

8.52%

-8.01%

0.61%

Earnings Reaction

-2.74%

-5.59%

-7.89%

-10.44%

SunPower has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have clearly expected more from SunPower’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has SunPower stock done relative to its peers, First Solar (NASDAQ:FSLR), Suntech Power (NYSE:STP), NRG Energy (NYSE:NRG), and sector?

SunPower

First Solar

Suntech Power

NRG Energy

Sector

Year-to-Date Return

230.8%

69.34%

-34.31%

9.44%

56.46%

SunPower has been a relative performance leader, year-to-date.

Conclusion

SunPower is attempting to fuel the world with an alternative energy source through solar technology. The stock has seen a large decline over the last few years but is now attempting to reverse this trend and shoot higher. Over the last four quarters, earnings have improved while revenue figures have been on the rise, but investors have clearly expected more from the company. Relative to its peers and sector, SunPower has been a year-to-date performance leader. Look for SunPower to OUTPERFORM.

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