I wrote in a previous article about how climbing costs were really putting the squeeze on SunPower's (Nasdaq: SPWRA) margins. The solar panels maker saw its revenues jump, but escalating expenses and subsidy withdrawals in the Italian market affected profitability.
Let's take a detailed look at SunPower's fundamentals and examine where the company stands from an investment viewpoint.
Cost squeeze
SunPower's revenues jumped 54% in the just-concluded quarter, but this was offset by an increase in expenses, compounding its quarterly losses to $148 million. The numbers remain in the red even after excluding the $75 million of nonrecurring expenses -- termination of third-party contracts, writedown of inventory, and panel reallocation due to slowdown in the European market.
Inventory woes
Inventories, which were up by a significant 72% despite posting a jump in revenues, add to mounting concerns. While the entire industry continues to battle poor demand, SunPower seems to be hit the hardest. Inventory turnover measures how quickly the company is turning its inventory into sales.
|
Company |
Inventory Turnover Ratio |
Change in Inventory |
|---|---|---|
| SunPower | 4.7x | 72% |
| JinkoSolar (NYSE: JKS) | 7.2x | 136% |
| ReneSola (NYSE: SOL) | 5.9x | (1%) |
| Yingli Green Energy (NYSE: YGE) | 4.9x | 44% |
Source: Capital IQ, a Standard & Poor's company.
SunPower seems to be stacking up inventories as its sales in the Italian market suffer. The fact that it also has the lowest inventory turnover among its peers suggests poor sales and overstocking/stock obsolescence.
Value
Let's take a look at how the company stacks up against its peers on the valuation front.
|
Company |
TEV/EBITDA (TTM) |
Trailing P/E (TTM) |
Forward P/E |
|---|---|---|---|
| SunPower | 7.60 | NM | 8.82 |
| JinkoSolar | 3.25 | 2.93 | 2.92 |
| ReneSola | 1.78 | 2.00 | 1.64 |
| Yingli Green Energy | 3.94 | 4.25 | 4.48 |
Source: Capital IQ, a Standard & Poor's company. TTM = trailing 12 months. NM = not meaningful.
SunPower is the most expensive of the lot that reported profits in the just-concluded quarter. Additionally, these Chinese peers have expanded globally and are well-positioned in China, a fast-emerging market for solar products. On the other hand, it's hard to see SunPower doing well in the near future unless it can sort out its issues with high costs. Compared to its peers, a forward P/E of almost nine seems too much to pay.
Is there hope?
SunPower is realigning itself after the setback in Italy and shifting focus to North American markets. The company will be setting up a factory in Mexico, along with a 250-megawatt solar ranch in California. Management stated its cost control intentions in the last press release, but did not specify how it would fulfill those intentions.
The Foolish takeaway
SunPower is flexing its muscles in North America, but will it be able to pack a punch? Will its woes continue into the next quarter? Will there be some concrete cost control measures? There are too many unanswered questions about this company, so I intend to keep an eye on SunPower by adding it to My Watchlist.
