How Financially Strong Is SunPower Corporation (NASDAQ:SPWR)?
Investors are always looking for growth in small-cap stocks like SunPower Corporation (NASDAQ:SPWR), with a market cap of US$1.11B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Semiconductor industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SPWR here.
Does SPWR generate an acceptable amount of cash through operations?
Over the past year, SPWR has ramped up its debt from US$1.87B to US$2.11B – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels 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 assess some of SPWR’s operating efficiency ratios such as ROA here.
Does SPWR’s liquid assets cover its short-term commitments?
Looking at SPWR’s most recent US$1.10B liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.35B, with a current ratio of 1.23x. For Semiconductor companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SPWR face the risk of succumbing to its debt-load?
With total debt exceeding equities, SPWR is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, 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. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure SPWR has company-specific issues impacting its capital structure decisions. I recommend you continue to research SunPower to get a more holistic view 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.
