What happened
Shares of residential solar-panel installer Vivint Solar (VSLR) were up 11.7% as of 11:30 a.m. EDT on Wednesday in an apparent delayed reaction to good news that broke earlier this week.
Late on Monday, according to TheFly.com, investment bank Roth Capital Partners issued a status report on the solar power industry, saying that a company called Loanpal, which provides loans to homeowners looking to install solar panels, has successfully securitized two packages of U.S. residential solar loans.
Image source: Getty Images.
So what
Securitizing loans basically means taking the face value X of a bunch of loans you have issued, and selling them to a bank or other investor for X minus a few percentage points. For the lender, this is a way to quickly replenish its cash reserves in order to have funds available to make even more loans. For the buyer, it's a way to get access to the loan repayment installments, so as to secure a steady stream of income that will add up to a tidy profit over the initial outlay to purchase the securitized loans.
This is good news for Vivint Solar because the fact that Loanpal has found a buyer for its solar loans means that there's growing demand for solar loans among investors -- and growing demand for solar panels among homeowners.
Now what
Investors are accordingly getting more optimistic about the solar industry in general today, and about Vivint Solar, one of the more consumer-facing businesses in the industry.
To an extent, that makes sense. I'd only point out that before you go chasing this rally in Vivint Solar stock, it's worth taking a moment to consider that Vivint hasn't been profitable for more than two years now. And according to analysts polled by S&P Global Market Intelligence, it isn't going to become profitable anytime in the foreseeable future
If you're OK with that, buy the stock. But if you're not, then don't.