SPI Energy Stock Up 31% On Revenue Miss – What, Again?

Trade SPI Energy Shares Your Capital Is At Risk
Tim Worstall
Updated: 4 Apr 2022

Key points:

SPI Energy (NASDAQ: SPI) stock is one of those that can be used as a demonstration of the difference between business and economics. Or perhaps between the success of a sector and that of the companies within it.

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The specific information driving today’s 31% rise in SPI stock is the release of the full-year results. These were good enough perhaps, revenue up 16.9%, assets up 5.4%. Cash and cash equivalents at year-end were $9.8 million. However, this was a revenue miss – against analyst expectations – of $3.9 million which is less good. What might well be driving the stock price is that revenue expectations for the coming year are in the $200 to $220 million range.

On the other hand, we might want to be a little wary given that short interest is near 6% of the company. At least some folk out there don’t think much of the operation.

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At which point it’s probably worth a bit of a deeper dive in our thinking. OK, yes, the world’s going solar, we know that. Ever more cells and panels are being installed. It’s also true that combining solar with an EV style battery – as Tesla has shown with the Powerwall – sells well. We don’t expect this process to stop any time soon, in fact, we expect it to continue to accelerate.

So, in the right business at the right time, why isn’t SPI hugely more valuable? They’ve been around for some years after all. The problem, if there is indeed one, perhaps being that there’s a large difference between a sector doing well and the individual companies in it doing so.

For, if there are many companies chasing the same business then margins on it – however much the market size itself is growing – will be thin and can in fact be negative. This is how it actually is in solar cells and panels across the market generally too. It’s not just Solyndra that has gone bust in this sector in the past, after all, SolarWorld in Germany did so, as have many others.

No, this is not to say that SPI is about to fail. Just to show that a competitive sector is competitive. It’s not just about how many people are buying the new thing, it’s really about the balance between sales and producers – supply and demand, that is. If supply is geared up tighter than demand then the sector can be riotously expansive and yet most suppliers unprofitable.

As an example, for many years now Apple and Samsung between them have been making greater profits than the whole mobile handsets industry – on net, everyone except them has been losing money. And this at the time when mobile phones were the world’s and history’s fastest adopted technology ever.
This is not to say that there’s anything wrong at SPI at all. It’s just to point out that the stock is in a difficult industry because of that competition. That’s why 16% growth rates might not translate through into a soaring stock price.

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