Why Did SunPower Stock Go Down?

SunPower Corporation (NASDAQ:SPWR) may easily be dismissed as just another solar company but it’s in fact an early industry pioneer that has roots stretching back to the early 1980s when founder Richard Swanson, a professor at Stanford University, came up with a novel solution.

He figured out how to apply of photovoltaic technology to deliver some of the most efficient solar panels in the world. In fact, SunPower’s Maxeon solar cells, which were developed in the early 2000s, have consistently set records for efficiency, achieving up to 22.7% efficiency, notably higher than the industry average.

Still, history is littered with examples of great technologies that don’t make great businesses. Take the airline industry as the prime example. So is SunPower a good stock to buy?

Is Solar Energy The Path Forward?

The new millennium brought a significant transition in the energy sector. In the early 2000s, coal was a major source of power in the United States, and renewable energy had a mere sliver of the total market but by the late 2000s and early 2010s, clean energy grew more popular. Environment regulations became increasingly stringent, and coal began to lose market share.

The U.S. Energy Information Administration (EIA) has made a bold prediction that wind and solar energy will lead in the growth of power generation for the next two years.

Specifically, solar power generation is expected to increase by 75% from 163 billion kilowatt-hours (kWh) in 2023 to 286 billion kWh in 2025.

The ongoing rise in fuel prices has contributed to the adoption of alternative resources, especially now that electricity price increases are outpacing inflation.

Over the past decade, solar energy has delivered an average annual growth rate of 22%, and the cost to install solar, which has long been an obstacle to the sector’s growth, has declined by more than 40%. Of course, soft costs like the ones associated with customer acquisition, installation labor, and permits are still high.

The Inflation Reduction Act (IRA) is pulling money into the sector. This is the most transformational clean energy legislation in U.S. history, and solar energy stands to be the frontrunner in the list of beneficiaries of this act.

Is SunPower Stock A Buy? 

SunPower’s expertise lies in the design of all-in-one residential and commercial solar solutions. The company has a 36 year history that puts it in a good position to benefit from the Inflation Reduction Act and the decline in the cost of installing solar technology.

The company’s commercial success has not translated to stock market success, though. This year alone the stock is down by 95%. Meanwhile, the broader market, as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), gained 12%.  

Why Did SunPower Stock Go Down? 

Disappointing results, supply chain headaches, and rising interest rates have all combined to cause SunPower stock to go down.

Remarkably, there have been high points for the stock in spite of the general downward trend. In May a spike occurred that got investors excited.

So, what was the reason for SunPower stock’s impressive rise? The answer was a short squeeze. SunPower shares are highly shorted, which makes the company prone to meme frenzies.

SunPower stock temporarily caught the attention of internet investors, and they sent share prices skyrocketing. Unfortunately, the share price dropped just as quickly when social media attention moved on to other companies. 

A closer look at SunPower’s financials illustrates the logic behind the short sales. The company’s fiscal 2023 non-GAAP top line fell by 3.4% from the prior year to $1.69 billion, spotlighting subdued demand for solar technology. Even more concerning is that SunPower posted a non-GAAP loss of $158.53 million.

SunPower is burning through cash at the moment. As of December 31, 2023, the company had $98.48 million in cash, cash equivalents, and restricted cash, which is a substantial drop from the $406.51 million it had on January 1, 2023.

It is worth noting that SunPower has accumulated $344.33 million in short-term debt, as well, and the company has a negative operating cash flow as of year-end 2023.

SunPower’s leadership team has high hopes of achieving positive free cash flow in the second half of this year, and the company is successfully raising capital. In February, SunPower announced it had commitments for $175 million in new capital financing from TotalEnergies and Global Infrastructure Partners.

SunPower is late in filing its latest quarterly report, and it was downgraded to “Underperform” by Wolfe Research analyst Steve Fleishman, who sees more downside to the stock performance.

Fleishman stated that he believes the company still needs more funding, and he pointed out that the rooftop solar panel market in California, where SunPower is quite heavily exposed, is facing an uncertain outlook.

SunPower stock is currently trading on the inexpensive side when conventional multiples are viewed but the balance sheet risk should be the focus for most investors. If the cash burn rate exceeds the reserves, the company will be forced to file for bankruptcy. 

For now, this is a wait-and-see stock that appears to be a speculative gamble. It does appear that insiders are confident based on the share buyback in place but the reward to risk ratio seems very dicey for all but the most risk-seeking traders until the balance sheet reserves improve. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.