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SolarCity Corp.’s Wild Ride Continues

By Motley Fool Staff - May 24, 2016 at 7:25AM

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This solar power system company's shares are not an investment for the faint of heart, or the weak of stomach.

This isn't an easy time to be a SolarCity (SCTY.DL) shareholder. Although the company nearly doubled revenue in the first quarter, on the whole, its performance came in under the market's expectations. Compounding that, Nevada introduced a new proposal that would sock solar customers with higher fees and reduce what they pay them for electricity.

In this segment from the Motley Fool Money radio show, Chris Hill and Simon Erickson talk about those and other reasons why the company's shares have experienced such a roller coaster ride in May -- its stock price is down more than 25%. They then discuss why the stock is so volatile in general.

A full transcript follows the video.

This podcast was recorded on May 13, 2016. 

Chris Hill: On Tuesday, shares of SolarCity fell more than 20% after a disappointing first-quarter report. But the stock began to claw its way back later in the week, got back maybe about half of those losses. Simon, this is one of those stocks that is not for the faint of heart.

Simon Erickson: No kidding, right? This par for the course for SolarCity now. Sometimes you see a month where the stock is down 50%, and the very next month, it'll be up 50%. You almost have to have a stomach lining of steel to handle this volatility. What is going on behind the scenes here is, the market is trying to figure out how to balance out SolarCity's huge opportunities with the huge risk with the business right now. 

Addressing the risks first, Nevada just had a very controversial decision where they were retroactively going to reduce net metering rates and impose fixed fees on solar customers. Retroactively meaning, if you put a solar system in two or three years ago with different guidelines, you are now on the hook for the lower rates, even though you already put the system in place. And there's a lot of fear out there, as there should be, from homeowners that this might happen in their state as well, and others might follow suit.

Balancing that with the huge opportunity, we've already talked about the growth rates of solar quite a bit. They're very impressive. SolarCity, through financing a lot of the panels they put in place up front, is able to capture enough cash to fund the development of more panels, too. They're adding a lot of value to the business, but there are a lot of risks that remain, too.

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