A short squeeze has hit the residential solar industry.
Solar energy stocks had an incredible day on Tuesday with SunPower (SPWR 59.64%) jumping as much as 105% in trading before closing up 61.6% on the day. Call it meme trading or a short squeeze, but shares were up huge on almost no news for the industry.
SunPower wasn’t the only solar stock moving today. Sunnova Energy International (NOVA 27.51%) was up as much as 32.8% and closed the day up 27.8%, while Sunrun (RUN 6.51%) rose 15.5% before closing up 6.5%. Will the gains today last?
Memes and short squeezes
Yesterday started a major run-up in stocks that were popular in the 2020 and 2021 meme craze, including SunPower, Sunnova, and Sunrun. But the move was given fuel by what appears to be a short squeeze, and you can see below that SunPower’s large short interest percentage has fueled its rise.
SPWR percent of float short, data by YCharts.
A short squeeze happens when short-sellers are forced to sell their positions to cover mounting losses. In 2021, it was a popular tactic to target companies with high short interest and bid the stock higher, forcing short-sellers to buy back shares, pushing shares higher still.
Sometimes short squeezes stick, and sometimes they’re short-lived. We won’t know what this one will do for some time, but given the high short interest, it’s possible shares keep moving higher from here.
Have solar stocks been given a lifeline?
While residential solar stocks have struggled in 2024, companies like SunPower and Sunnova have spent time solidifying their balance sheet in anticipation of an improved operating environment in the second half of the year. We’re starting to see higher utility rates help demand, as well as companies working through the impact of higher interest rates and California’s rules on buying back electricity generated by individual homes and businesses.
Balance sheets were stretched earlier this year, but higher stock prices could help with financial prospects. Companies will now find it easier to raise cash through share offerings or even convertible debt offerings to finance solar projects. To the extent they need to, this bounce can help with that.
But the businesses could also naturally be returning to better operating conditions. If that’s the case, any improvement would provide operating leverage if demand does return.
Is the bounce worth buying?
Are any of these companies worth double what they were on Friday? Probably not, but they might have been oversold as well. And in the case of SunPower, the stock was trading around $2 per share a few days ago, so it doesn’t take much to push the stock higher.
We don’t have full data about how short interest has changed over the last two days, but don’t be surprised if this is the theme for the next week or two. If short-sellers have closed their positions, we could see stocks — especially SunPower — fall sharply in coming days. But if they’ve doubled down on short positions, it could give more fuel for shares.
While I’m not buying or selling based on memes or trading momentum, I will be watching to see if higher stock prices give companies confidence to raise funds. It might be the right time to raise enough money to get through any industry turmoil.