Shares of rooftop solar panel lessor Sunnova Energy International (NYSE:NOVA) tumbled more than 12% this morning in response to a sell report from short-seller Spruce Point Capital Management. As of 11 a.m. EDT, Sunnova has clawed back most of its losses but remains down 4.6%.
Viewed from another perspective, however -- the perspective of its stock performance over the past year -- Sunnova shares are up 162%. So should investors be worried about today's 5% haircut?
Spruce Point certainly thinks so. In today's short report, the analyst lists a litany of sins that it believes "should worry investors." These begin with the future of the solar industry in general, where solar systems are getting "more affordable" such that homeowners are becoming less inclined to lease them and more inclined to buy (imperiling 96% of Sunnova's revenue streams), but the concerns don't end there.
Sunnova also worries about:
- New competition, noting that companies like Loanpal captured 17% market share in solar financing in Q1.
- Lack of scale relative to larger solar installation companies such as Sunrun (NASDAQ: RUN) and Vivint Solar (NYSE: VSLR) -- which are merging to become even bigger.
- An overreliance on adjusted EBITDA -- earnings before interest, taxes, depreciation, and amortization -- rather than real free cash flow, which is negative at Sunnova.
- And declining core earnings.
Unprofitable Sunnova isn't actually "earning" anything, of course. But losses in this year's first half were slightly lower than losses in last year's H1, according to data from S&P Global Market Intelligence.
Spruce Point also combs through Sunnova's payroll to list a series of "corporate governance concerns and insider activity" at Sunnova that it finds disconcerting, ultimately concluding that Sunnova stock that costs north of $25 a share today may be worth as little as $5 to $8.
With analysts not forecasting true generally accepted accounting principles (GAAP) profitability for the company before 2022 at the earliest, it could be a while yet before Sunnova has a chance to prove Spruce Point wrong about that.