The stock market has been paying attention to SunPower (SPWR) in a big way. At the end of May the stock hit an annual high of 23.76, a gain of 125% from where it was just a month earlier. That price is quadruple levels it was trading at in the beginning of the year.
Since May, the stock has seen about a 17% correction, and is trading sideways in the 18 to 20 price range. Volume at these high price levels have been impressive too—shares exchanging hands in the past 30 trading days exceeds that of the previous 64 trading days.
Investors have been impressed with the latest earnings report, and the company estimates that earnings per diluted share will turn positive next quarter, beating analyst estimates. Despite this recent jump in the stock price, is SPWR still a good investment?
SunPower is a small to medium sized California-based solar company with about 5,000 employees and $2.5 billion in annual sales. This vertically integrated solar company is involved in the manufacture, installation and service of photovoltaics. SunPower delivers solar to a huge array of customers around the globe, from rooftop residential systems to commercial, government and utility-scale power plant clients. SunPower claims to have the largest U.S. residential and commercial installed base, with over 100,000 residential systems installed.
A look at SunPower’s comparative financials paints a mixed picture of the company’s future prospects. The chart above measures SPWR against the average of 23 other solar companies in the same size range (those with annual sales between $1 billion and $10 billion).
When comparing debt and sales growth, SPWR beats out the competition. It posts numbers 50% above the other companies. It measures poorly, though, on earnings, profits and return on equity. Having said that, it should be noted that these three later measures are all negative on average for solar companies in the group, it’s just that SunPower’s numbers are more negative. So for example, the current EPS for SunPower is -2.8, compared to an average for the other solar companies of -1.3.
Solar installation as an investment theme is hot on analyst’s radar these days, and it is largely due to this part of SunPower’s business that the stock is getting so much attention. It is important, then, to compare SPWR against the other big players in solar installation.
The chart above shows SunPower compared to four other publically traded major players in solar installation: Real Goods Solar (RSOL), SolarCity (SCTY), Sunvalley Solar (SSOL) and Akeena Solar (WEST). This comparison, again, shows a mixed picture. SPWR compares well in market cap and price/book ratio, but measures up poorly on sales, net margin and return on equity.
I believe the main justification for investor interest in SunPower is its history of positive earnings surprises—this is a metric where SunPower shines. To illustrate, when earnings came in at $0.22/share for the first quarter of 2013, it handily beat consensus analyst estimates of $0.06/share. Similarly, earnings per share of $0.18/share for the fourth quarter of 2012 exceeded the average analyst estimate of $0.14/share. Once a trend like this is established, professional investors take notice.
So while SunPower may not rise to the top of comparable companies, it continues to be an investor favorite. As long as the company continues to perform well in the ultra-competitive solar sector, SunPower will remain one of the Roen Financial Report’s top picks.