The bubble burst on shares of SunPower(NASDAQ: SPWR) today after the stock had been soaring this week. The provider of residential solar and energy storage services didn't announce anything new this week, but its stock rocketed higher by 91% in the first two trading days.
That came from a wave of meme stock trading focused on heavily shorted stocks, including SunPower. As of the end of April, an astounding 95% of SunPower shares available to be traded by the public were held by short sellers. But the recent meme craze is already fizzling, and SunPower stock had plunged by 30% as of 10:08 a.m. ET Wednesday morning.
Wall Street analyst wake-up call
That surge in the stock had nothing to do with the company's fundamentals. SunPower, in fact, has been burning through cash and has a heavy load of short-term debt. One Wall Street analyst put out a note this morning that may have been the wake-up call investors needed.
Wolfe Research analyst Steve Fleishman called SunPower the "most extreme example" of the meme stock frenzy in its sector this week. He also downgraded the stock to the equivalent of a sell rating, with a price target of $2 per share. That would represent a 54% drop from yesterday's closing price and put shares closer to where they started the week.
Fleishman predicted the end of the retail trader-driven excess, commenting, "We expect the stock to come back to reality once the [short] squeeze pressure abates." Today's reaction is a lesson for shareholders to ignore sentiment that has nothing to do with the business itself.
SunPower has been burning cash, forcing it to raise additional capital earlier this year. Management hopes to be cash-flow positive in the second half of the year, but investors would be wise to wait and see if there is real progress rather than jumping in too soon. An update should come next week when the company is expected to report first-quarter earnings.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
