Credit to Motley fool for this trade of the day idea!
SPWR ipo’d yesterday and went from $18 (which was already 50% higher than expected) to $26 in its first day of trading.
That gives SunPower(great name) a market cap of $1.5Bn (muhahaha) on sales of $50M which produced losses of $15M over the company’s 9 month history. It also gives SPWR about $150M in cash to play with so it will be a lot of fun to try to figure out what they will be doing for the next 5 years.
No this is not leading up to a short – shorting hot stocks is America’s fastest way to go bankrupt and, as Whole Foods has taught us, never underestimate the amount of money the earthy crunchy crowd will throw at a stock!
So why are we discussing this? Math time!
SPWR is a very smart spin off of a decent company called Cypress Semiconductor. They have had troubles of late, partly caused by everyone beating up the industry and partly from the distraction of the spinoff. They are well positioned and blah, blah, blah… Who cares, it’s semi-conductors! Let’s do math!!!
They don’t actually make money at the moment but they have a market cap of $2bn with $250M in cash on hand. Currently trading at $15.54, they were as low as $8.45 this year but they have little debt ($600M) for a semi and they spend over $250M a year on R&D which is way over industry standards so one day another $100M will drop down into profits.
A lot of that R&D and very little sales and some losses have just been spun off to a company that is still going to be using CY chips as they grow (CY controls 98% of SPWR voting stock).
Ok, so let’s say that the company is fairly valued at $15 – why bother with it. Well, a lot of that R& D spending went into developing SunPower, which people seem to like so it kind of might pay off. One item that does not show up in a casual look at Cypress’ books is the fact that they own 52M shares of SPWR which are now worth $1.35Bn!!!!!!!!!!!
Think what you will about the value of SunPower (great name!) but, on the next quarterly statement, Mr. Rodgers gets to say to his shareholders “by the way, cash on hand and securities now account for 75% of our market cap!” Maybe that’s why he hasn’t sold a single share in at least 3 years…
So I’m going for the December $17.50 calls @ .50 looking for a 25% gain and get out but hoping to get lucky but not too much because the stock is high off the 50 dma of $14 and I would hope for a pullback before taking a big position.
