Yahoo Finance How Financially Strong Is SunPower Corporation (NASDAQ:SPWR)?
SunPower Corporation (NASDAQ:SPWR) is a small-cap stock with a market capitalization of US$1.10b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Semiconductor industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I recommend you dig deeper yourself into SPWR here.
How much cash does SPWR generate through its operations?
Over the past year, SPWR has ramped up its debt from US$1.87b to US$2.11b , which comprises of short- and long-term debt. With this rise in debt, SPWR’s cash and short-term investments stands at US$435.10m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SPWR’s operating efficiency ratios such as ROA here.
Does SPWR’s liquid assets cover its short-term commitments?
With current liabilities at US$1.10b, it appears that the company has been able to meet these obligations given the level of current assets of US$1.35b, with a current ratio of 1.23x. Usually, for Semiconductor companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does SPWR face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, SPWR is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since SPWR is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, SPWR has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SPWR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research SunPower to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SPWR’s future growth? Take a look at our free research report of analyst consensus for SPWR’s outlook.
Valuation: What is SPWR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SPWR is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
