Can Solar Stocks Continue Their Hot Streak?

SolarCity (NASDAQ: SCTY  ) was up as much as 10% today, and competitor SunPower (NASDAQ: SPWR  ) hasn't been too far behind. The catalyst of today's move was an upgrade of SolarCity from Deutsche Bank, which now thinks the stock is a buy.

Like Goldman Sachs earlier this month, Deutsche is getting into the solar game a little late after SolarCity has had a long run-up over the past year.

SCTY Total Return Price Chart

SCTY Total Return Price data by YCharts

The question now is if solar stocks can continue their hot run. Below, I'll cover what SolarCity, SunPower, and First Solar (NASDAQ: FSLR  ) need to do to outperform the market this year.

The rubber hits the road
We're less than a month from solar earnings season and that's where the run-up over the past month or two will really be tested. In a hot industry like solar, hitting your numbers often isn't good enough, so wowing investors will be important.

For SolarCity, management said it would deploy 101 MW of solar in the fourth quarter and 475 MW-525 MW in 2014. That's as much as 90% growth this year and is a main reason the stock is up so much in recent months. Keep an eye on continued growth momentum as well as retained value per watt, which last quarter stood at $1.37. This figure should creep higher this year along with total retained value, the figure used to approximate SolarCity's overall value.  

For SunPower, the stock's run will only continue if the company continues to increase profits. 2013 saw operations swing from huge losses to as much as a $1.50 profit per share this year on a non-GAAP basis. The stock sank after last quarter's report because investors were spooked that 2014 earnings may only be $1 per share, so look for guidance to get an indication as to where the stock is going. Higher prices in the market should help results, and SunPower really needs another blowout quarter to keep the stock moving higher.

SPWR Revenue (TTM) Chart

SPWR Revenue (TTM) data by YCharts

First Solar is the forgotten player in solar because it doesn't have exposure to the more popular residential solar market. But it's also the most profitable with $5.40 per share in earnings over the past year. For First Solar to begin performing like SolarCity and SunPower we'll need to see backlog increase and panel efficiency improve dramatically so the company's technology doesn't fall behind. That's what could push the stock higher this year.

Expecting 300% gains from any of these stocks is setting expectations too high this year. But there's still a lot of upside, especially for SolarCity and SunPower if they can continue to grow installments and increase margins. Doubling again this year isn't out of the question if they perform well operationally.

High quality is winning
We don't know exactly where solar stocks are headed over the next year, but it's reasonable to predict that high quality companies will continue to outperform low quality companies. Despite the incredible year solar had last year, LDK Solar and Suntech Power are essentially insolvent and won't survive long-term.

On the flip side, SolarCity, SunPower, and First Solar are thriving and lowering costs. Long-term, that will keep them competitive in solar and should help push their stocks higher.

3 stocks for energy's future
Who else is ready for the future of cleaner energy? The Motley Fool is offering a comprehensive look at three energy companies set to soar as the energy industry evolves and we highlight them in the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2798446, ~/Articles/ArticleHandler.aspx, 8/28/2015 8:25:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated Moments ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
FSLR $47.80 Down -0.04 -0.08%
First Solar CAPS Rating: ***
SCTY $48.00 Up +1.77 +3.83%
SolarCity CAPS Rating: ****
SPWR $24.32 Up +0.45 +1.89%
SunPower Corporati… CAPS Rating: ****