Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of solar manufacturer SunPower (NASDAQ:SPWR) dropped as much as 12.9% today after reporting third quarter earnings.
So what: In the quarter, revenue was up slightly to $657.1 million and adjusted earnings per share rose from $0.03 a year ago to $0.44. That crushed the $0.25 estimate from Wall Street, and full year guidance of $1.30 to $1.50 per share in earnings is ahead of the current $1.23 estimate. So, why the drop?
On the conference call, management said that earnings next year would be around $1, below estimates of $1.23.
Now what: The reason earnings are expected to be down next year are dilution of the share count, as convertible bonds are counted in the EPS calculation, and costs associated with a 350 MW capacity expansion. Also, keep in mind that management has historically set a low bar for earnings and then leapt well over it, something it will probably do next year.
I took a deeper dive into earnings earlier today, which you can find here, but the bottom line is that long-term investors shouldn't be concerned. SunPower is profitable, and when its manufacturing facility comes online the earnings growth engine will kick into high gear. This is still a top stock in solar.
Fool contributor Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.