It’s been a sizzling year for SunPower (NASDAQ:SPWR) in 2020. But looking out into 2021, is the forecast likely to remain sunny for its shareholders? Let’s look at what’s happening off and on the price chart of SPWR stock, then offer a risk-adjusted determination for investors in today’s market.
Solar and alternative energy stocks of all kinds have been hot this year. The Invesco Solar ETF (NYSEARCA:TAN) is up 132% since January 1. It’s impressive in a period where the S&P 500 has scratched and clawed its way to gains of about 10%. But the returns in TAN also compare favorably to the leading tech-heavy Nasdaq Composite, which is up 29%. Nice, right?
At the same time, SPWR is up a near double of the sector proxy. SunPower’s return of roughly 264% is one of the industry’s standout performances alongside more recent publicly-listed companies Enphase (NASDAQ:ENPH), Sunrun (NASDAQ:RUN) and SolarEdge Technologies (NASDAQ:SEDG).
So, what gives? What’s driving this industry veteran’s relative and absolute strength? Along with its peers, one thing is certain. It’s not a current White House whose idea of a Green New Deal would likely favor corporate tax breaks rather than environmental conservation initiatives. And unlike many stocks such as Zoom Video (NASDAQ:ZM), Amazon (NASDAQ:AMZN) or Costco (NASDAQ:COST), and businesses which have flourished during Covid-19, SPWR has certainly not been a beneficiary of that paradigm shift.
Of course, SPWR and solar as a group haven’t participated in the broader market’s historic bull run since the 2008 – 2009 financial crisis. In fact, until August, TAN has been trading beneath its March 2009 low for nearly the entirety of the past nine years. The performance over that period was an even worse for SunPower investors until this summer.
As much, it might be easy to see the gains as a byproduct of Wall Street making a quick rotation trade. To some degree it likely has been, but it’s also more than that.
How Analysts View SunPower
It’s not exactly a secret that costs for solar have come down massively to compete with fossil fuels. At the same time, advancing alternative energy is a pillar of the incoming Biden administration and technological efficiencies should act as supportive tailwinds for the industry.
SunPower has also pivoted from a solar panel supplier for residential and utility markets into a vertically-integrated financing and power sales business. That’s good, right?
If it sounds as though it’s finally time for SPWR to shine, the message appears to be lost on the analyst community. SunPower shares currently maintain seven holds compared to just three buy recommendations. The stock also has two sells and one underperform.
But maybe those concerns aren’t entirely misplaced. SunPower’s earnings power has been spotty. As recently as this past quarter, despite a top and bottom-line beat, both losses and shrinking revenues were present.
SPWR Stock Weekly Price Chart
Source: Charts by TradingView
The big picture for solar and alternatives has grown stronger off the price chart. And there’s no denying Wall Street’s enthusiasm for the group, or for that matter, it’s forward-looking bid in SPWR stock. Honestly, it would be hard to knock SunPower’s performance given the environment too.
Despite today’s fundamental shortcomings, SPWR stock’s still relatively low valuation near $3 billion versus 2020 sales forecasts of $1.9 billion is a certain driver for investors. With more egregious pricing in the broader alternative market such as Nikola’s (NASDAQ:NKLA) earlier this year, and a market cap that remains more than double SPWR’s with only projected sales in the coffers, the gains in SPWR look even more reasonable, relatively speaking. “It is what it is.”
Technically, I’d be cautious purchasing SunPower shares. Well, in a weird sort of way. The observation is SPWR is a momentum play. Buying on weakness means gaining exposure within the current steeper trend or possibly risking a much larger loss if investor attitude towards the stock and its peers changes for the worse.
As much, picking up shares on a move towards trendline and Fibonacci support of $15.60 – $17 with a stop or better yet, a protective married put strategy, is how I’d pay-to-play SunPower with an eye on the future and not worrying about the rearview mirror.
No Stocks Owned: On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.