Storm Clouds Ahead for SolarCity Investors? SunPower and First Solar, Too?http://www.fool.com/investing/general/2013/11/07/storm-clouds-for-solarcity-investors-sunpower-firs.aspx Jason Hall
November 7, 2013
Investors in solar could be suffering from whiplash over the past few weeks, with shares of major players like SolarCity (NASDAQ: SCTY), First Solar (NASDAQ: FSLR), and SunPower (NASDAQ: SPWR) moving up and down more than 5%-10% or more within a few market days, or in some cases, even just a few hours. After a remarkable 2013, with the three companies up between 89% and 441% YTD, many investors are probably asking one question: Is now the time to take profits, or is there more money to be made? Let's take another look at the bigger picture, and talk about how Trina Solar (NYSE: TSL) could be a great long-term play.
Massive market opportunity
The growing demand for cheap energy worldwide, coupled with increasing fossil fuel costs and lower costs for renewables point toward a bright future for solar as a growing piece of the global energy puzzle.
Why all the ups and downs?
Money today, money tomorrow
The challenge for First Solar and SunPower, when it comes to SolarCity, may be that SolarCity doesn't use either company's panels in its installations, primarily working with Chinese panel maker Trina Solar, according to one SolarCity sales representative I've met with. Trina Solar is an interesting company to look at, as a comparison to domestic competitors like SunPower and First Solar.
First, there's the fallout of the Chinese government's heavy subsidies of the country's solar industry, which nearly crippled the U.S. solar manufacturing business over the past couple of years. The effects of this action left a bad taste in many investors' mouths after being burned as a result of a foreign government's actions in the market. Add in that Trina Solar is still losing money, and there's plenty of reason to stay away.
However, the company recently raised guidance on both panels shipped and gross margin. This bodes well for the future if these continue to trend higher, and lead to profitability.
And profitability is still the key
This quarter, SolarCity, SunPower and First Solar all reported positive earnings per share, and SunPower and First Solar are projecting profitability moving forward even as they invest those profits in growth. SolarCity, on the other hand, is guiding to a (non-GAAP) loss in Q4 of more than 55 cents per share; however, management is telling us it will be net cash-flow positive. For a company investing in such incredible growth, seeing positive cash flow is, well, very positive for investors.
Trina is more of an unknown, and certainly a speculative bet