Pineapple Energy reported third quarter earnings results this morning, and while these results aren't anything to write home about, their prospects for the future look really good, in my opinion. I have written recently about PEGY in an article entitled Short Squeeze Possibilities. That article discusses them from the point of view of a short squeeze. I don't know if recent news is enough to spark a short squeeze, but I suppose you never know. They are currently up about 35% pre-market, and there are zero shares available to short (zero borrow).
What has me excited?
The news release from November 10, Pineapple Energy Acquires New York-based SUNation Energy
, is the real gem recently. The solar installation industry in the United States is quite fragmented and is ripe for a roll up strategy like Pineapple Energy seems to be doing. This most recent acquisition is expected to triple their annual revenue and help them achieve positive cash flow in 2023. Also from that press release was the following bit of news: "the Company also entered into an agreement with the Company’s existing
preferred stock and warrant holders (the "PIPE Investors"), whereby these investors provided certain waivers to the anti-dilution
protections, in return for a reset of the conversion price of the
preferred stock to $4.00 and a reset of the strike price on certain of
their warrants to $4.00 from $13.60." This move helps to remove restrictions on future acquisitions with a relatively small short-term cost. I like it.
Short Borrow Availability and Fee Rate
This next chart is pretty cool. It's an overlay of the three-month stock chart on the fee rate rate and short borrow availability for the same period. Notice how closely the fee rate tracks the share price, which tends to lead.
We'll have to wait and see how this spike in price affects the fee rate going forward, but it's crazy high enough right now.
I really like what I see here. I still have not pulled the trigger on shares yet, but I will probably buy some soon. I think this stock is moving much higher as long as they can keep executing their vision.
Just bought some at an average price of about $3.18. I'm planning to hold these shares for a while. We'll see how it goes.
Pineapple Energy has been flying under the radar for the last week or so as it has logged a 10-BAGGER. That is, as of today it has officially printed a trade 10x its recent low of $0.76. That was on October 3rd. What a difference nine days make! It's trading over $7 as I write this.
Pineapple Energy, Inc., based in Minnetonka, Minnesota, provides solar energy services to residential and commercial customers and IT (information technology) services through its legacy subsidiaries (JDL Technologies and Ecessa). They had a bit of a shakeup earlier this year when they acquired two Hawaii-based solar providers, Hawaii Energy Connection and E-Gear (collectively the HEC Asset Acquisition). They changed their name from Communications Systems, Inc.
Solar Is Much Sexier
IT services are no slouch when it comes to sexiness, but with the passage of the Inflation Reduction Act, the solar industry is booming. For good reason, too. Much of the southern US is perfectly suited for solar. Demand for electricity is highest in the summer when solar energy production is highest.
Why Is It Interesting?
Well, besides the obvious share price appreciation in the last week or so, what's most interesting to me is the company strategy. From their most recent 10-Q:
"The Company’s focus is acquiring and growing leading local and regional solar, storage and energy service companies nationwide, which commenced with Pineapple Energy’s acquisitions of certain assets of Horizon Solar Power and Sungevity in December 2020."
"The fragmented installation market can be seen by the current dynamic in market share. Sunrun RUN and SolarCity (Acq. by Tesla TSLA) hold ~15% and ~14.4% of the American market, respectively; other regional players makeup the rest of the ~70.6%.
So... the company seems like a classic roll up
Again, from the company's most recent 10-Q, they list their pro forma numbers:
"The following unaudited pro forma information represents the results of operations as if the Company had completed the merger and HEC Asset Acquisition as of January 1, 2021."
So the new business combination is profitable. This is all projection, but just for fun let's annualize the 3-month numbers above and put an industry valuation on it.
I pulled the following average PE ratios from Aswath Damodaran's website
. Electrical Equipment is the category he puts the solar companies in generally.
Keep in mind that these figures are as of the start of 2022 so they should be adjusted accordingly. So, with 7.44M shares out and annualized net income of $6.62M, that's about $0.89 eps. Not too bad for a little solar company. If you use 50% of the forward PE above to be conservative, the stock is still undervalued by quite a bit even after its recent rally. 13x 0.89 yields over $11/share.
I would be remiss if I didn't mention some of the interesting trading activity that's happened recently in this stock. The Unusual Short Sales Transactions list featured PEGY
three different times as it began its recent move. See the chart below.
The stock is looking pretty overbought short term, but I will definitely be keeping this little gem on my radar.