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One Solar Company that Flew Too Close to the Sun

By Motley Fool Staff - Apr 5, 2016 at 6:00PM

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Unlike First Solar or SunPower, this company got a little too excited.

SunEdison (SUNEQ), a solar company that once sparked excitement and hope, seems to be now in the death throes of bankruptcy.

In this clip from the Industry Focus: Energy podcast, Tyler Crowe and Sean O'Reilly explain the attitudes and practices that spelled SunEdison's failure, and how they mirror the failure of so many companies in new tech-y areas. Then, they name few solar companies that have been thriving, and what they're doing differently.

A transcript follows the video.

This podcast was recorded on March 31, 2016.

Sean O'Reilly: We have to talk about SunEdison before we get out of here.

Tyler Crowe: Talk about how wonderful solar is growing, and we'll talk about the one company that seems to be going bankrupt when it comes to solar.

O'Reilly: It's weird, yeah! I mean, what's the stock at? $0.40?

Crowe: It's somewhere around $0.40-0.50.

O'Reilly: You compare them to being the Icarus of the solar industry, of course alluding to the Greek myth about the kid that had the wax wings--

Crowe: Flew too close to the sun.

O'Reilly: Too close to the sun, even though he was flying, and melted the wings, and down he went. Why do you make that analogy?

Crowe: Well, if you look at the solar industry, and this happens with a lot of new technologies. You have something new and wonderful--

O'Reilly: Well, it's the bubble, boom, you know.

Crowe: Right. And, it's so easy to get excited about the potential for the disruption, the ability to grow into this multi-trillion dollar market. And one of the things that everybody gets caught up on when it comes to things like this is growth rates, and how spectacular they look. So, when you have a company that comes in like a SunEdison that talks about how much they're going to grow and how quickly, and you can see the growth trajectory of revenue growth and things like that, and all these new projects that are coming online, and how much they're spending on new projects, and it just looks very tempting. The only problem is, especially in an industry like electricity, it's not a fast-growing industry in general. We only grow electricity consumption by 1%--

O'Reilly: It follows population growth, more or less.

Crowe: Yeah. And all we're basically doing is replacing old capacity with a little bit of added new. It's not like an iPhone, where everybody's going to pick it up and go. It's basically trying to compete with an existing industry. So, when you have a company like SunEdison that grows this fantastically, and is taking on large amounts of debt, and you look at the situation of how they had it, it wasn't exactly the most well-managed. They're looking at doing all these massive spin-offs, because they're just trying to inhale capital as fast as they can to grow, and the only problem is, there was never any cash flows or any growth of the bottom line to support that. Now, you contrast that with the companies that have been successful in the solar industries in the past couple years. You look at First Solar (FSLR 0.03%), you look at SunPower (SPWR -1.01%), they haven't chased the rainbows in the industry. They set pretty modest growth targets, "We're going to grow at this rate, we're going to build great panels, and we're not going to get caught up trying to build out with huge amounts of debt, we're going to try to live within our cash flows." And they've done much better jobs at maintaining that and being a better long-term investment, versus somebody like SunEdison who got everybody a little too excited.

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Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$68.15 (0.03%) $0.02
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$15.65 (-1.01%) $0.16
SunEdison, Inc. Stock Quote
SunEdison, Inc.
SUNEQ

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