What: Shares of residential solar company SolarCity Inc (NASDAQ:SCTY.DL) jumped 12% on Monday as speculation that clean energy will become a booming long-term investment took hold on the market.
So what: What a wild day for solar stocks in general, and specifically SolarCity. There was no excitement for the industry at the beginning of the day, but by the closing bell, the market seemed to be in love with the solar industry.
One driver could have been the climate-change agreement reached in Paris over the weekend. The agreement will probably mean greater support by governments for the solar industry and therefore greater demand for products from SolarCity. There have also been rumblings that Congress could be ready to extend the solar investment tax credit, which helps fund nearly half of each SolarCity installation and could boost growth if extended. The deal in Paris could help push the U.S. toward an extension of the ITC.
Now what: I'd love to say that something fundamental changed about SolarCity or solar energy today, but the pop in the market is more speculation than fundamental strength. Once the glow of Paris wears off, I wouldn't be surprised to see shares fade again as traders move on to the next hot industry.
With that said, the solar industry's long-term future is extremely bright, and a global climate-change deal is just another data point to bolster a bullish investment thesis. But investors should keep an eye on fundamental results, such as improving sales costs and cash flow, as a reason to buy, rather than look at these political agreements. Despite today's stock move, fundamental strength will drive results long-term, while the politics of solar energy can come and go depending on the week or month.