Chinese Solar Company Jumps 67%. Opportunity or Swindle?

​The Chinese solar company SPI Energy Co., headquartered in Hong Kong and with a Santa Clara, California location, saw its share price soar 67% on Sept. 18, 2019, on the news that it was launching a CBD and hemp business. Its partner is the Navajo Nation, according to the company’s press release. What’s interesting about this is that the share price lift-off comes at a time when popular publicly traded cannabis companies, like Canopy Growth, Tilray, Aphria, Cronos and more, are trading near their 52-week lows. So what resonated with investors about the SPI transaction?
 
As the company started to increase in share price, the story went viral on SeekingAlpha and Yahoo Finance (and more media outlets) with headlines like, “Tiny Solar Stock is Leading NASDAQ with Legal Weed.” A microcap with only $27 million in value (red flag) can jump far and fast with those kinds of headlines. But is the substance of this company as good as the story? Should you tame your racing heart, which wants to jump in and join the party, while you read between the lines?
 
Here’s where a simple Stock Report Card, 4 Questions and the 3-Ingredient Recipe for Cooking Up Profits are essential. If you’re just chasing headlines and price jumps, that’s a recipe for being on the wrong side of the trade – on the Buy High, Sell Low side. SPI affords a fantastic opportunity to see how the company shapes up with real world analysis.
 
The 3-Ingredient Recipe For Cooking Up Profits. (Take each ingredient/step in order.)

1. Start with what you know and love
2. Pick the Leader
3. Buy low, sell high.

 
As you can see in the recipe above, price is not helpful in picking a leader. However, once you’ve picked your leader, the price, along with other valuation analysis, can help you to be on the right side of the trade.
 
The Stock Report Card and the 4 Questions are key to picking the leader. In my 1st book Put Your Money Where Your Heart Is, which I wrote in 2006, I compared Google and General Motors as examples of how to use the Four Questions for Picking a Winner. Google (now Alphabet, Inc.) received an A, while GM received a D-. Google went on to become one of the most valuable companies in the world, with a current market capitalization of $855 billion (almost a trillion). General Motors declared bankruptcy in 2009. The company recently exited the sedan business, and is in the 4th day of a company-wide strike by the United Auto Workers Union. GM’s market capitalization is $55 billion, compared to Toyota’s $194 billion.  
 
As you can see from the Stock Report Card below, there is a lot of information which is difficult to obtain from SPI Energy. On the SEC Edgar platform, the last filing was in 2017. Morningstar is showing net losses for at least a decade for the company. Even when there is data, the Four Questions can be very revealing, particularly when a solar company is getting high (literally) on hemp (at least temporarily, in its share price). When there is no supporting earnings reports, then these questions are essential to ask. 

Solar Stock Report Card by Natalie Pace. (c) 2019. All rights reserved.

 
The Four Questions for Picking a Leader

1. What’s the Product?
2. Who’s the Customer?
3. Why do people like the product better than the competition? Can the company continue to maintain that competitive edge?
4. Who’s the CEO? What is his/her track record?

 
And here is how SPI Energy (Smart Power Innovation) measures up.
 
The Four Questions for Picking a Leader

1. What’s the Product? On SPI’s website, in their Company Overview, they state that the company “is a global provider of renewable energy solutions and crypto-miner hosting services.” The Sept. 18, 2019 press release claims that the company is now launching its hemp and CBD business in partnership with the Navajo Nation. On May 14, 2019, SPI announced a new Cayman Islands partnership to develop cotton, alfalfa and other agriculture products in Arizona, along with up to 5 MW of solar.  
2. Who’s the Customer? Hmmm. The solar customer is a very different person than the cryptocurrency miner, although the crypto miner might be very into the CBD products. Farming seems pretty far afield from all of this… Who can possibly be great at all of these diverse products?
3. Why do people like the product better than the competition? Can the company continue to maintain that competitive edge? If Morningstar is correct that SPI Energy has ten years of cash negative operations, then the company is not making a better product with more efficient operations. Since it is so difficult to find any earnings reports, it’s impossible to determine if sales are increasing or declining. The Investor Relations and annual reports tabs on the SPI website have nothing available. This is a giant red flag, and could result in a delisting from NASDAQ. SPI did a 10 for 1 reverse merger on Nov. 15, 2018 in an attempt to keep their NASDAQ listing. However, they’ll need to file an earnings report as well.
4. Who’s the CEO? What is his/her track record? In 2008, before the clean energy market tanked, the CEO of SPI Energy, Xiaofeng Peng, was ranked #13 on the Forbes Chinese Billionaire List, with wealth of $1.4 billion. By Nov. 18, 2015, LDK Solar, Peng’s solar company, had collapsed into a bankruptcy and liquidation of assets. In August of 2018, it was reported that Peng had been accused of swindling investors and that the Chinese police have launched a “global manhunt” to arrest him.  

​The Bottom Line
Never use share price to determine whether or not a company is a good or bad investment. It will almost always put you on the wrong side of the trade (i.e. losing side). If you pick a winner before the market does, and buy low, then once investors hear the news that you’ve discovered before the headline, they’ll jump in, pushing your investment into gains. That’s a winning formula. At that point, when everyone else is just getting started (and buying in much higher than you did), you’ll be determining whether or not it’s time to capture gains, hang on for more, or a combination of both.  
 
While we didn’t do a full analysis of First Solar and Canadian Solar, both companies have been around for a while and have impressive growth in their sales. First Solar has a backlog of orders through 2020, and is expecting revenue growth of 68% this year. That has already been priced in, however. As you can see, the forward price-to-earnings ratio of First Solar is still 27.16, which is high in this late stage of the business cycle. Canadian Solar had a great quarter, but is forecasting flat growth for the rest of the year.
 

If you'd like to learn how to evaluate individual stocks and your nest egg strategies, join Natalie Pace at an upcoming Investor Educational Retreat. Call 310-430-2397 or email info @ NataliePace.com to learn more now. 

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.