3 Reasons SolarCity's Stock Could Rise

Since hitting the public markets in late 2012, SolarCity (NASDAQ: SCTY  ) has been one of the hottest stocks in a rising solar industry. The company has proven to be adept at not only growing quickly enough to impress investors, but cut costs and increase long-term value at the same time.

SCTY Chart

SCTY data by YCharts

There's never a guarantee that a stock will rise or fall, but here are the three biggest reasons SolarCity could soar over the next few years.

Incredible growth
What SolarCity has done better than any other company in solar over the last two years is grow. In 2013, the company installed 280 megawatts of solar-power systems and expects that to grow to 500 megawatts this year and 900 megawatts-1 gigawatt in 2015.

SolarCity workers install a rooftop solar system. Source: SolarCity.

The ability to scale their sales and installation force is impressive, particularly for a business that's upending the way consumers think about energy. It's the first time that consumers have been offered the ability to be energy producers and SolarCity has created a lease and sales model that makes this transition easy to understand.

As the cost of solar power falls, the market opportunity will grow exponentially, and with a huge lead over competitors in residential solar, SolarCity should be able to maintain a large market share in the space.

Creating more value every day
SolarCity's value for shareholders is based on creating what it calls retained value. This is a present value of the future cash flows of lease customers and at the end of the second quarter stood at an impressive $1.8 billion.

Commercial solar systems are also a growing part of SolarCity's business. Source: SolarCity.

Since retained value is basically the difference between payments from customers and costs associated with building and financing systems, SolarCity benefits from lowering both the cost of installation and financing. On that front, the company is making impressive progress.

Management gave detail in the second quarter on system installation costs and during the quarter average installation costs were $2.29 per watt. That's down an incredible 27.5% from the fourth quarter of 2012 when installations cost $3.16 per watt. Even when sales, general, and administrative costs are included the average system costs just $3.03 per watt.

Financing has made similar improvements, which can be seen by the company's securitization offerings. The first offering opened up a new market for solar but required SolarCity to maintain a lot of the risk on their balance sheet and came with a fairly high interest rate. Below, I've taken some of the highlights from the first and third securitization offering. You can see that the interest rate commanded by the market is significantly lower, the percentage of a system's cost that is securitized is higher, and residential mix is higher.




Securitization Issuance

$54.4 million

$201.5 million

MW Collateralized



Debt Monetization ($/Watt)

$1.24 / Watt

$1.71 / Watt

Spread Over Benchmark Rate

265 basis points

209 basis points (weighted between two tranches)

Residential/Commercia Mix



Source: SolarCity.

As SolarCity has lowered costs, contract prices have remained similar at $0.15 per kW-hr, allowing margins and retained value per watt to widen over time. If these margins can maintain where they are then SolarCity's growth will add incredible value to shareholders.

Elon Musk
The wildcard in SolarCity's future is Elon Musk. He's the chairman of the board and largest shareholder, guiding the company's strategic direction. There's no doubt that Musk had a large hand in the Silevo acquisition and will play a major role in its future as a manufacturer. But what else does he have up his sleeve?

With a company as young and full of potential as SolarCity you're really betting on the vision and execution of management. At the end of the day, that comes down to Musk. He's not an innovator I would bet against, and if SolarCity is going to soar to new heights he will guide the way.

Foolish bottom line
SolarCity is currently a $6.6 billion company that is still reporting losses as it fuels future growth. That makes it a high-risk stock, but if the company can continue to grow, drive value by cutting costs, and innovate with new products it could be a big winner for investors.

An energy tax break you should know about
You already know energy production in the U.S. is booming, but you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (1) | Recommend This Article (0)

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.

  • Report this Comment On August 14, 2014, at 9:00 PM, photonics wrote:

    I respectfully disagree. I believe that pricing is falling faster than SolarCity can adapt. Their late entry into the solar loan financing market as well the massive amount of expenditures and lack of profits may just spell their doom.

Add your comment.

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: 3070157, ~/Articles/ArticleHandler.aspx, 9/3/2015 9:42:47 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 26 minutes ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

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

9/3/2015 3:59 PM
SCTY $49.79 Up +0.37 +0.75%
SolarCity CAPS Rating: ****