SunPower Corporation (NASDAQ:SPWR) has pulled back sharply in the last two weeks, logging weekly losses of 2.8% and 5.8%, respectively. As SPWR prepares for its turn in the earnings confessional -- set to report second-quarter earnings after-the-close next week, Wednesday, July 31 -- this recent pullback could present a unique buying opportunity, if past is precedent.
More specifically, the equity has pulled back to support at its 30-day moving average, after a lengthy stretch above it. There have been six similar run-ups to this moving average in the last three years, after which SPWR stock was higher 10 days later by 9.9%, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with 100% of the returns positive.
Meanwhile, implied volatilities on the equity are at low levels, per SPWR's Schaeffer's Volatility Index (SVI) of 61%, which registers in the 31st percentile of its annual range. If the SVI holds steady around its two-year average over the next couple of weeks, White's modeling shows that an at-the-money SPWR call option could potentially return 128% on another expected bounce from support at the 30-day trendline. In other words, prospective call buyers could more than double their money on a roughly 10% gain in the shares.
At last check, SunPower stock was down 2.6% to trade at $10.73, so another "average" pullback from this trendline over the next two weeks would put the stock around $11.90, just south of its July 9, two-year high of $12.79. Even amid SPWR's recent pullback, the equity has still doubled in 2019. And as alluded to two weeks ago, there's still tremendous pessimism surrounding the solar stock; 30% of its total available float is sold short and the majority of analysts in coverage have "hold" or worse ratings in place.
Looking at SunPower's earnings history, the solar stock has closed higher the day after earnings in five of the past eight quarters -- including a 11.1% pop back in May, and a 7.1% burst this time last year. Over the past two years, the shares have swung an average of 9.1% the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 13.5% swing for Thursday's trading.