Is SunPower a Worthwhile Risk?

With shares of SunPower Corporation (NASDAQ:SPWR) trading at around $15.18, 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:

C = Catalyst for the Stock’s Movement

SunPower has seen a lot of volatility lately. This has a lot to do with SunPower being one of the top players in a weak industry. Many longs like the company, and many shorts hate the industry. Let’s take a look at some positives and negatives for SunPower.

Positives:

  • Most efficient solar panels in industry (residential)
  • Strong performance from rooftop and ground mount teams
  • Consistently improving revenues on an annual basis
  • Strong revenue growth in Americas and Asia-Pacific
  • Gross margin expansion
  • Improved cash flow
  • Increased demand
  • Residential lease growth
  • Cost structure improvements
  • Analysts like the stock (kind of): 4 Buy, 11 Hold, 3 Sell

Negatives:

  • Consistent losses
  • Revenue declines in Europe, Middle East, and Africa
  • Increased competition
  • Foreign exchange risks

Now let’s take a look at some numbers. The chart below compares fundamentals for SunPower, First Solar (NASDAQ:FSLR), and Trina Solar (TSLR). SunPower has a market cap of $1.81 billion, First Solar has a market cap of $3.79 billion, and Trina Solar has a market cap of $387.69 million.

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SPWR

FSLR

TSL

Trailing   P/E

N/A

N/A

N/A

Forward   P/E

26.65

13.36

N/A

Profit   Margin

-12.98%

-2.86%

-20.56%

ROE

-31.00%

-2.66%

-26.30%

Operating   Cash Flow

$316.47 Million

 $762.21 Million

  -$178.20 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

N/A

36.10%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for SunPower is weaker than the industry average of 0.40, but it still qualifies as normal.

Debt-To-Equity

Cash

Long-Term Debt

SPWR

0.72

$506.60 Million

$676.43 Million

FSLR

0.16

$1.00 Billion

$563.04 Million

TSL

1.56

$807.28 Million

$1.37 Billion

 

T = Technicals Are Strong   

SunPower has been one of the hottest stocks throughout the broader market so far this year.

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1 Month

Year-To-Date

1 Year

3 Year

SPWR

61.21%

169.90%

169.00%

2.85%

FSLR

63.69%

40.27%

155.50%

-64.59%

TSL

36.41%

12.21%

-37.16%

-75.42%

 

At $15.18, SunPower is trading above all its averages.

50-Day   SMA

11.75

100-Day   SMA

9.81

200-Day   SMA

7.14

 

E = Earnings Have Been Weak            

Earnings have been unimpressive over the past two years. However, revenue has slowly but steadily improved.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

1.44

1.52

2.22

2.37

2.42

Diluted   EPS ($)

1.05

0.35

1.75

-6.28

-3.01

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   millions

494.13

595.90

648.95

678.52

635.43

Diluted   EPS ($)

-0.67

-0.71

-0.41

-1.22

-0.46

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Do Not Support the Industry

With a solar panel glut, decreased average selling prices, and substantial weakness in Europe, trends don’t support the industry. However, it’s no secret that solar should eventually succeed. It’s just a matter of how eventual that will be.

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Conclusion

SunPower has enormous potential, and it’s always good to be ahead of the curve, but there are substantial risks, especially considering that the stock market is at all-time highs, and the Bernake will eventually have to unwind monetary stimulus and raise in interest rates. When this occurs, there won’t be a flight to solar stocks.

Despite today’s losses for the industry, there might be room to run prior to the broader market falling. However, those looking for sustainable long-term gains are likely too early.

SunPower is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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