Solar stocks could be in theory the hottest stocks to trade now, not because it is summer. It is mostly because the temperature is high and solar companies could provide a long-term solution to energy efficiency, clean energy, and to lowering energy costs driving down the inflation that remains at very high historic levels.
These solar stocks to sell should come as no surprise as there are credible arguments to back this decision.
Let’s have an analytical view on why to sell these solar stocks or avoid them should you consider buying them.
| RUN | Sunrun | $24.66 |
| SPWR | SunPower | $17.2 |
| MAXN | Maxeon Solar Technologies | $11.52 |
Sunrun (RUN)
Sunrun (NASDAQ:RUN) has lost nearly 23% of its value in 2022 and its losses could get worse soon. The firm reported sales growth of 74.58% in 2021 which was not enough to make profits, but rather it generated a net loss of $79.42 million.
In the first quarter of 2022, the firm had mixed financial results with EPS GAAP of -$0.42, a miss by -$0.27, and revenue of $495.78 million a beat by $94.18 million.
The top argument to sell the RUN stock is its free cash flow trend. The company is burning cash consistently in the past five years which is bad news for the valuation. There is also a debt problem as the Debt-to-Equity ratio is 1.2 and the Debt-to-EBITDA is -45.6.
The Price/Sales (TTM) ratio of 2.94 does not support a cheap stock either.
A firm to pay off its debt must generate cash, do not burn it. Sunrun has a very important cash burn problem. The above factors should make you run away from RUN stock now.
SunPower (SPWR)
SunPower (NASDAQ:SPWR) has weal financial strength with a Debt-to-Equity ratio of 1.59 and an Altman Z-Score of 0.5, which indicates the firm is in financial distress.
The Debt-to-EBITDA ratio of 12.07 is too high and in an environment of rising interest rates having too much debt is a very bad business and financial decision.
When a firm has a positive sales growth like in 2021 with an increase of 17.66% and it produces a net loss rather than expected profits then there is a problem in its business. This is evidenced by the cash burn problem like Sunrun.
The stock is not cheap as it trades at a Price/Sales (TTM) ratio of 1.96 and at a Price/Book (TTM) ratio of 7.86.
Maxeon Solar Technologies (MAXN)
Maxeon Solar Technologies (NASDAQ:MAXN) is a classic textbook stock to avoid. The firm has had negative sales growth over the past two consecutive years, -29.50% in 2020 and -7.29% in 2021 respectively.
The company is losing money and its net losses have widened in 2021 to -$254.52 million from – $142.63 million in 2020. There is also enough debt as the Debt-to-Equity ratio is 1.02.
The Altman Z-Score of 0.22 signals there is a financial distress and this is confirmed by the negative free cash flow trend.
The following financial ratios should never be used in isolation, but they are more than enough to show how poor is the profitability of the firm. The gross margin is -5.12%, the operating margin is -21.37% and the net margin is -32.68%.
Having net losses and burning cash is one of the worst financial performances a company could have. Avoid it as it is just a compelling Sell.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.