With a $59.60 million market cap, Sunworks, Inc. (SUNW) provides photovoltaic and battery-based power and storage systems and serves the agricultural, commercial, industrial, public works, and residential markets in the United States. The company also designs, finances, installs and manages systems ranging in size from approximately two kilowatts (kW) for residential projects to multi-megawatt (MW) systems for more extensive commercial and public works projects.

Investors have been bearish about SUNW due to its deteriorating financials and decelerating market share. Over the past few years, the company has been recurring huge losses. The stock has plummeted 41% in price year-to-date and 82.1% over the past year to close yesterday’s trading session at $1.81. SUNW is currently trading 550.3% below its 52-week high of $11.77, which it hit on June 28, 2021.

However, the company is working on reviving its profits through the Solcius acquisition and new pricing strategies. “In response to rising labor and raw materials costs, we introduced a series of price increases in the first quarter and early into the second quarter, actions that are expected to result in sequential margin expansion during the latter half of 2022,” said Gaylon Morris, SUNW’s CEO.

Here is what I think could influence SUNW’s performance in the upcoming months:

Poor Financials

For its fiscal first quarter ended March 31, 2022, SUNW’s net revenue improved 405.7% year-over-year to $31.20 million. However, its operating expenses increased 353.6% year-over-year to $22.22 million. Its operating loss widened 70.6% from the year-ago value to $8.20 million.

SUNW’s adjusted EBITDA loss amounted to $5.63 million, compared to a $3.88 million loss reported in the prior-year period. In addition, the company’s net loss and net loss per share came in at $8.21 million and $0.28, respectively, widening 70.5% and 47.4% year-over-year.

Weak Growth Prospects

Analysts expect revenues to rise 4.2% year-over-year to 33.45 million in its fiscal 2022 second quarter (ending June 2022). However, the $0.20 consensus loss per share estimate for the ongoing quarter reflects a 12% increase from the same period in 2021. Also, the company’s loss per share for the current year (ending December 2022) is expected to come in at $0.67.

Low Profitability

SUNW’s trailing-12-month EBIT margin is negative 20.91%, and its trailing-12-month EBITDA margin is negative 15.96%. Furthermore, the company’s trailing-12-month net income margin and ROCE are negative 23.79% and 39.52%, respectively.

POWR Ratings Reflect Bleak Prospects

SUNW has an overall rating of F, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

SUNW has an F grade for Stability and Sentiment. The stock’s relatively high beta of 1.61 justifies the Stability grade. In addition, SUNV’s F grade of Sentiment is consistent with its bleak earnings growth estimates.

SUNW is ranked #17 out of 19 stocks in the F-rated Solar industry.

Beyond what I have stated above, we have also given SUNW grades for Value, Growth, Quality, and Momentum. Get all the SUNW ratings here.

Bottom Line

SUNV reported disappointing latest quarterly results and hinted at declining growth. Furthermore, the macroeconomic headwinds, including high input and labor costs amid record-high inflation and the possibility of an economic slowdown, could dampen the company’s performance. So, we think the stock is best avoided now.

SUNW shares were trading at $1.85 per share on Wednesday afternoon, up $0.04 (+2.21%). Year-to-date, SUNW has declined -39.74%, versus a -19.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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