Troubled solar power company SunPower (NASDAQ:SPWR) is the latest name to join the meme rally. SPWR stock is soaring 130% in early trading as retail investors focus on the fact that 94% of its shares are being sold short, according to Fintel.
SunPower Is Undergoing a Short Squeeze
SunPower, which is one of the most shorted stocks in the market, appears to be in the early stages of a short squeeze. Such a phenomenon occurs when stocks rapidly climb, forcing many short sellers to buy back at high prices the shares that they had previously borrowed and sold. These short sellers’ purchases, in turn, cause more short sellers to buy back shares at even higher prices, restarting the cycle.
However, as Barron’s warns, retail investors often quickly abandon stocks. As a result, the equities undergoing short squeezes today could plummet tomorrow.
SPWR Stock: Weak Fundamentals
SunPower specializes in providing solar panels for homeowners in the U.S. In recent years, the firm has fallen on hard times. In 2023, for example, its revenue dropped to $1.685 billion from $1.74 billion in 2022. It reported an operating loss of $178.5 million last year versus an operating loss of $200,000 in 2022. Like many solar firms, SunPower is being hurt by high interest rates and changes in California’s regulations that reduced the extent to which the state’s homeowners are incentivized to install solar panels.
In December, SunPower was forced to amend its credit agreement and receive a waiver from its lenders. As of the end of last year, it had a total debt of $379.4 million and only $87.4 million of cash, while its current ratio was a low 0.94.
Heading into today, the shares had risen 19% in the last month, but they were still down 43% so far this year.
On the date of publication, Larry Ramer did not hold (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.
