Headquartered in Hong Kong, SPI Energy Co., Ltd. (SPI) provides photovoltaic solutions for business, residential, government, and utility customers and investors. The company also develops electric vehicles and EV charging solutions through its subsidiaries.

Shares of SPI soared 36.3% in price after the company’s Phoenix Motorcars division announced the production of its third-generation drivetrain products on June 9, 2021. Moreover, the stock has gained 353.3% over the past year, driven by bullish sentiments to close the last trading session at $5.44.

However, the stock is currently trading at a stretched valuation. In terms of trailing-12-months EV/EBITDA, SPI is currently trading at 43.77x, which is 135.4% higher than the 18.60x industry average. Its 1,760.31 trailing-12-month EV/EBIT multiple is 6,826.2% higher than the 25.42 industry average.

Here’s what could shape SPI’s performance in the near term:

Dilutive Equity Offering

On June 9, 2021, SPI issued a $4.21 million convertible promissory note to Streeterville Capital, LLC, a Utah limited liability company. The promissory note bears an interest rate of 10% per annum and has a May 8, 2022, maturity date. The note is convertible into ordinary shares of SPI at  $20.00 per share.

The note’s potential conversion to ordinary shares could lead to the dilution of SPI’s  share capital, which is expected to diminish its EPS and ROE.

Weak Profit Margins

SPI’s trailing-12-month EBIT margin is 99.3% lower than the 8.69% industry average. Also, the company’s gross profit margin is 75.2% lower than the 49.04% industry average.

Its 0.06% trailing-12-month ROTC is 98.7% lower than the 4.86% industry average. Also, its 2.64% EBITDA margin is 82% lower than the 14.70 industry average of. Its 0.14% Capex/Sales ratio is 93.9% lower than the 2.30% industry average.

Although the company reported 42% revenue growth in its fiscal year 2020, its profit margins remained bleak. Its net loss attributable to shareholders of SPI stood at $6.5 million or $0.40 per share in 2020.

Poor Capital Structure

SPI’s total debt amounts to $67.56 million. However, with $38.88 million in total cash, its net debt stands at $28.68 million. Moreover, the company’s trailing-12-month net operating cash flow stood at a negative $5.65 million. This raises concerns regarding the company’s creditworthiness and debt repayment capacity.

Also, absent  adequate cash flows, the company will not be able to operate as a going concern in the long run.

POWR Ratings Reflect Weak Fundamentals

SPI has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

SPI has a D grade for Stability and an F grade for Quality. Its negative 1.15 beta and lower-than-industry profit margins justify its Stability and Quality grades.

Of the 21 stocks in the Solar industry, SPI is ranked #7.

Beyond what we’ve stated above, we have also rated SPI for Momentum, Value, Sentiment, and Growth. Click here to view all SPI ratings.

View the top-rated stocks in the Solar industry here.

Bottom Line

SPI has introduced several next-generation electric vehicles over the past year, attracting investor attention. However, the renewable energy industry is currently facing high upfront cost and efficiency constraints, which might limit the company’s growth, given its weak fundamentals. Thus, we think it is better to avoid SPI stock now.

How Does SPI Energy Co., Ltd. (SPI) Stack Up Against its Peers?

SPI has an overall POWR Rating of D, which equates to a Sell Rating. While currently there are no stocks in the Solar industry with an A (Strong Buy) or B (Buy) rating, one might want to consider taking a look at Enphase Energy, Inc. (ENPH), Canadian Solar Inc. (CSIQ), FTC Solar, Inc. (FTCI), and First Solar, Inc. (FSLR), which are rated C (Neutral).

SPI shares were trading at $5.47 per share on Friday afternoon, up $0.03 (+0.55%). Year-to-date, SPI has declined -30.67%, versus a 18.88% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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