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Usually, when a publicly traded company loses over 31% of its equity value in a single shot, it’s a clear signal to run away. Such is the situation that clouds solar energy specialist SunPower (SPWR). After struggling against a brutal high-interest-rate environment, SPWR stock began showing signs of life on a possible pivot in monetary policy. Alas, Monday’s fallout caused the beleaguered enterprise to fall back down to Earth.
As Barchart content partner The Motley Fool (TMF) reported, SPWR stock fell as much as 41% at one point following the filing of SunPower’s updated quarterly and annual disclosures. In the most recent Form 10-Q report, management acknowledged “going concern” risks. Basically, it’s a warning that the solar specialist might not be able to continue operations under the current financial position.
Specifically, SunPower mentioned that it must restate financial results in October because a subsidiary incorrectly accounted for inventory. Subsequently, the corrective process forced a delay in SunPower filing its third-quarter results. Unfortunately, this caused a technical default on outstanding debt as timely 10-Q filings represent a component of the company’s contractual agreements with its creditors.
As TMF points out, “[s]ome debtholders could have immediately called their debt, but on Dec. 8, 2023, the company received a waiver that not only brought the company out of technical default, but also allowed the company to access $75 million in funding. Now, SunPower has until Jan. 19, 2024, to shore up its finances or receive further waivers or we could see a default again.”
Naturally, many investors of SPWR stock – already jittery about all that has transpired this year – dumped their exposure. It’s an understandable reaction given the circumstances. Nevertheless, for those who are just entering the space, context matters.
SPWR Stock is Ugly but Maybe Not Catastrophically So
To be sure, there’s no way to dress up a 31% single-day loss and I’m not going to try. It’s a hideous loss and that inherently makes SPWR stock a high-risk entity. Nevertheless, it’s important to realize that the smart money – professional traders and institutional investors – aren’t exactly betting universally on the downside wager.
Most notably, the options market shows a balanced approach to SPWR stock, if not slightly bullish. As you might expect, SunPower represented one of the top highlights in Barchart’s unusual stock options volume screener. In particular, volume on Monday hit 149,220 contracts against an open interest reading of 273,984 contracts. That comes out to a difference of 629.72% between the Monday session volume versus the trailing one-month average metric.
However, the split between puts and calls came out to a ratio of 1.1. Call volume reached 71,128 contracts while put volume came in at 78,092 contracts. Looking further into the data, Fintel’s options flow screener shows a varied response to the day’s price action.
In total, big block transactions for the Dec 29 ’23 4.00 Put came out to 9,992 contracts. On surface level, that sounds ominous. After all, put holders have the right (but not the obligation) to sell the contract’s underlying security at the listed strike price. However, we know from Fintel’s screener that a good chunk of those 9,992 contracts – 7,050 contracts worth to be exact – stemmed from major parties selling the puts.
Put another way, these put sellers are underwriting the risk that SPWR stock will not materially fall below the $4 strike price. If it does, upon exercise by the counterparty, the put sellers must buy SPWR at $4. However, even if they were forced to do so, that might not necessarily be a catastrophic move.
Conspicuously, in the trailing month, SPWR stock only lost about 6% of equity value. And compared against the close of the Nov. 27 session, shares are actually in the black. Adding to the positive speculation, the $4 line appears to represent a level of strong technical support.
No Pain, No Gain
Now, let’s just be brutally honest here. SPWR stock – just like other solar energy peers – represents an extraordinarily risky endeavor. Largely, the sentiment is tied to interest rates. Earlier, spiked borrowing costs hurt solar companies on both the business end (acquiring materials, paying for labor) and the consumer end (increased difficulties in financing solar systems and installation).
However, with the Federal Reserve hinting at the possibility of interest rate cuts next year, rejuvenated sentiment buoyed SPWR stock and its ilk. And that narrative remains in place, irrespective of SunPower’s contractual debt breach.
Further, it’s probably unlikely that creditors will treat SunPower in a draconian manner. Yes, it’s legally possible to lay down the hammer. But doing so will also negate future business opportunities with the enterprise in question. Therefore, creditors generally choose to engage in negotiations rather than stick coldly to the letter of the law.
Plus, with SunPower approaching possibly favorable conditions next year, creditors have another incentive to be patient. Put another way, SPWR stock is ugly; no doubt about it. But is it catastrophically so? I think the jury is very much out on that one.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
