This Solar Stock is Struggling Despite Interest from Pros

Sunworks (SUNW) is what we call a rubber-neck stock.

It’s a car wreck that catches fire, causing even top financial pros to look at what’s happening.

Shares of Sunworks tripled and collapsed within a few days. As far as we can tell, there was no news catalyst.

However, the short-live run made Sunworks the top solar stock search by financial pros in December.

But as we hope to prove by the end of this piece, popularity doesn’t mean it’s investible.

Sunworks’ Business

Sunworks provides high-quality solar power solutions tailored to meet the unique needs of its diverse clientele.

While a significant portion of its revenue stems from residential installations, Sunworks has made impressive strides in the commercial and public works sectors. 

The breakdown is as follows:

• Residential Solar (70.9% of total revenues) – Focuses on solar power installations for homes.
• Commercial and Public Works (29.1% of total revenues) – Caters to commercial entities and public works.

Sunworks isn’t profitable. However, it hoped its breakneck growth would eventually get them there.

That calculus changed as demand for renewable energy slowed across the board, even hitting electric vehicle demand for Tesla.

Even Sunworks’ residential order backlog is expected to clear within the year.

Financials

Source: Stock Analysis

Sunworks’ lumpy revenue growth puts it in a precarious position.

As gross margin expansion shows, the company needs higher revenues to improve profitability.

Yet, it doesn’t have the money to make that happen.

Operating cash flow has never been positive, burning about $5-$9 million per quarter.

With $2.2 million in cash onhand, the company has been forced to issue shares to raise additional capital.

To give you some perspective, at the end of 2018, Sunworks had 3.7 million shares outstanding. A year later, it had 6.8 million. And at the end of 2020, it had 23.8 million. Currently, there are 48.9 million shares outstanding for Sunworks.

At $0.22 per share, they can’t survive much longer.

Valuation

Source: Seeking Alpha

Sunworks isn’t profitable. But neither are most of its peers.

Neither Sunrun (RUN) nor Emeren Group (SOL) generate positive cash flow from operations.

Really, the only decent player here is First Solar (FSLR), one of the first publicly traded solar stocks.

Growth

Source: Seeking Alpha

Sunworks won’t survive on 20% annual revenue growth. Yet, none of its peers expect much better next year. Any further weakness in demand will accelerate Sunworks’ demise.

Profitability

Source: Seeking Alpha

The only positive here is Sunworks’ gross margin, which tops its peers. However, it isn’t able to translate that into profitability, spending too much on sales and marketing that isn’t driving enough business.

Our Opinion 0/10

We’re always suspicious of stocks trading below $5.00 per share (penny stocks).

Sunworks’ has all the hallmarks of bankruptcy.

Key among them – continual capital raises through share tenders and negative operating cash flow.

Demand for solar is slowing. We don’t see the upside here and would stay far away.

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