SunPower Corporation: Ridiculous Valuation, Heavy Insider Selling

Stocks related to solar power made a tremendous run in 2007 but they are currently grossly overpriced and overdue for a pullback. The insiders of most of these companies have been dumping shares like crazy which is never a good sign. Also, the market is expected to have a turbulent year so I think now is a good time to short some of these companies.

My solar pick to short is SunPower Corporation (SPWR). SunPower Corporation has shown strong growth over the last year but it currently has at a trailing PE ratio of 631 (that is ridiculously high). For growing companies a trailing PE is less important than the forward PE but SunPower’s forward PE is also astronomical (126 based on the high range of their forecast of GAAP earnings between $0.85 and $1.00 in 2008).

While investors have been buying, the insiders of SunPower Corporation have been dumping a huge amount of shares. Insider selling is never a good sign and the amount of selling that has taken place at SunPower should cause a lot of concern.

I guess there weren’t any lessons learned in the tech bubble because the analysts that cover SunPower haven’t downgraded SunPower but have actually been pumping this stock for the last few months. Maybe they will find the valuation of SunPower too expensive when it hits a forward PE of 200. If you think analysts are looking out for the interest of the small investor then SunPower clearly shows you are mistaken.

I think the ridiculous valuation, heavy insider selling, and unease in the stock market are going to bode ill for SunPower (as well as the other solar stocks). I am going to give a short recommendation at Friday’s closing price.

Disclosure: I have no position in SPWR.

Comments

[SmartGuySto...:]

You are correct about overvaluation, but shorting stocks on valuation alone has been proven to be a fool's game. You MUST wait until they break strong to the downside to get involved. If something is irrationally valued now, why can it not remain irrationally valued in the future? Be careful trying to call a top ...

2008 Jan 07 10:11 AM

[dgood:]

I think SPWR is overvalued, but I think the insider trading rule is tough to use here. I know a lot of people at the company - it's a bunch of do-gooder types that never expected to make oodles of money. They are sitting on huge gains right now, and I think it's prudent of them to harvest some of them.

2008 Jan 07 01:16 PM

[SolarGuru:]

I agree that SunPower is overvalued. But most other solar energy companies are not. I think it would be a mistake to short any of them (including SPWR) because any drop in price will be short-lived. SunPower may simply remain stagnanat relative to the others.

2008 Jan 07 02:47 PM

[RIA:]

Can anyone post here if they know of any reason why the $6.+ earnings forcast for '08 is inaccurate? I've searched high and low and can't find anything to suggest that the estimates include any big 1 timers or any type of currency adjustment from yuan to $u.s. If that estimate is correct, and including the $230mm contract they just signed (which equates to me, considering gross and bottom line margins, to add over $1. per share to earnings). Does the stock really trade at just about 4 or 5 times '08 numbers , yet growing at 50% plus for a few years? I'd guess that the value now then should be at $150.+

2008 Jan 08 02:29 PM

[RIA:]

....on Yahoo Finance for Solarfun , Nasdaq: SOLF

2008 Jan 08 02:30 PM

[Michael Davey:]

The group showed terrific resilience today, following a healthy slice on the market pressure yesterday. JASO, YGE and CSIQ at moment are my favorite and I would avoid FSLR and SPWR. But to short based on high PE's, over valuation and insider selling of a growth stock is so Barron's!!

2008 Jan 08 05:29 PM