Vivint Solar has patiently waited to go public and now that SolarCity (NASDAQ:SCTY.DL) has done the dirty work educating the market on solar and the market is near all-time highs, it's time to cash in. Blackstone Group, whose affiliate owns Vivint Solar, recently filed an updated S-1 that proposed raising as much as $426 million in Vivint's IPO, valuing the company at $1.9 billion.

The question for investors is: Will this be the next SolarCity, which is up 368% since its IPO, or just another overhyped stock? Before Vivint Solar hits the market, let's take a closer look at what the company is.

Residential solar systems built by SunPower. Image source: SunPower.

What you need to know
Vivint Solar is a residential solar installer and has a lot of similarities to SolarCity, the market leader in residential solar, but also some key differences. It's from that baseline that I'll look at the company.

Both companies primarily sell residential solar-power systems through long-term leases, capturing value by financing and owning the systems themselves. This allows them to use scale to sell and install systems, lowering costs for themselves and consumers.

Image source: Vivint Solar.

There are also some key differences in how Vivint Solar and SolarCity go about their businesses. SolarCity is constantly vertically integrating its business, buying racking maker Zep Solar and solar panel manufacturer Silevo, among other acquisitions. Vivint has maintained close supply relationships with a small number of suppliers like Enphase Energy, which is its sole inverter supplier. This allows Vivint to standardize components, but it doesn't pull the product entirely into its business. Essentially, SolarCity is trying to own the entire supply chain and Vivint is specializing in sales, installation, and financing.

Sales strategies also differ between Vivint Solar and most of its competitors. Vivint Solar uses a similar direct sales strategy as its parent company, going door-to-door selling solar-power systems. This concentrates installations into small regions of the country like Massachusetts, where Vivint Solar is the market share leader. It has also resulted in a lot of turnover in the sales staff with 43% of workers leaving between the beginning and end of 2013.

Another key to understand is that Vivint Solar and SolarCity have only recently begun crossing paths in the markets they serve. Vivint Solar started expanding its business on the East Coast while SolarCity began serving the West Coast. From that perspective, competition between the companies has been low, something that will be interesting to watch as they grow across the country. 

SolarCity workers install a residential solar system. Image source: SolarCity.

Can Vivint Solar upset the solar industry?
Vivint Solar has built up a 9% market share in the residential solar market in a little over two years, which is an incredibly fast pace. It is also gaining steam, more than doubling installations in the first half of this year to 56.8 megawatts. With an addressable market of over 91 million homes, or about 456 gigawatts given an average system size of 5 kW, the residential solar industry is just getting started. Given the fact that it only has strong roots in six states it could expand quickly across the country.

For investors, the Vivint Solar IPO isn't a slam dunk, especially if the $1.9 billion market cap holds. SolarCity's market cap has fallen to $5.7 billion and would be a safer bet given its scale and cost structure. The company also lost $56.3 million last year and another $69.2 million this year, and the retained value model it is pushing has a long way to go to prove long-term profitability.

But the opportunity in solar is immense and Vivint Solar is just getting started. I think a basket approach to the industry is wise with other leaders like SolarCity, SunPower, and First Solar included in your portfolio, but Vivint Solar should be considered among the industry leaders, and it'll be a big player in this industry for years to come. 

Travis Hoium owns shares of Apple and SunPower. Travis Hoium has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends Apple and SolarCity. The Motley Fool owns shares of Apple and SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.