As mentioned in my first article, "The goal of any alternative energy concept is (or at least should be) to produce energy that cost less to make than traditional means. Nuclear, incineration, hydro, geothermal, wind, solar, etc. -- all are still too expensive despite trillions of dollars having been poured into these technologies over the years. The reason for their failures is either prohibitively high up front capital costs that bare far too little energy return (e.g. - solar and wind), have high energy costs themselves (e.g. - biomass incineration), or high labor cost (e.g. - ethanol and other biofuels)."
Unlike other solar power companies, the SolarCity (SCTY) plan addresses this, head on, for both customers and investors. The company offers something unique. SCTY essentially owns the solar panels costing the customer nothing up front and instead sells the solar-generate electricity back to the customer (either as a monthly lease style option or paying for the solar electricity per kWh itself, much in the same way in traditional means). Both options are expected to be cheaper in every way to the consumer so the solar panels sell themselves and literally pay for themselves instantly.
As an additional money-saving bonus, customers can lock in solar electricity rates in a contract (similar to cell phone plans) to protect against future electricity inflation. What does a consumer have to lose? The demand is there and continues to grow-- which is not surprising. For investors, SCTY is essentially setting up permanent recurring revenue streams with each customer it signs up and installs solar panels with. The cash flows from that point are almost all profit to SCTY and its shareholders and continue indefinitely by essentially setting up a mini power station owned by SCTY but stationed at each customer site.
There have been many great articles out on SCTY such as this one. Here are 5 more reasons SCTY shines bright like a diamond:
1. SolarCity is a bright spot for investors. Take First Solar, Inc. (FSLR) as an example. After its year-end and 4th quarter results disappointed investors, shares of FSLR took a nosedive. Management called it "a very challenging market environment" and "we expect the market will remain turbulent for some time to come." In its conference call, weather was blamed for delays and interruptions. SolarCity stands out because, unlike FSLR, it derives most of its revenue from energy sales from already installed solar panels, rather than from selling solar panels themselves. This consistent, recurring revenue stream is more predictable, consistent, and steady for investors to rely on. Kind of like the power that solar panels are supposed to bring: predictable, consistent, and steady.
2. Guidance and rapid growth. In fiscal 2011, SCTY deployed 72 MW. In fiscal 2012 to be reported shortly, SCTY expects to report 156 MW deployed, a growth of 117% with 47 MW in Q4. That is an annualized rate of 188 MW or 161% over 2011. No excuses, no complaints, just consistent reliable growth delivered to shareholders. For 2013, SCTY guided deployments of 250 MW representing an expectation of another 60% growth over 2012. Updates to this guidance will come with each quarterly conference call and could change at any time, most likely to rise if history is any guide (2012 beat its own internal projections). Meanwhile, analysts expect a 5% decline in sales for FSLR.
3. Insider buying. Three insiders (directors) have bought millions of dollars worth of shares including some of them well above the IPO price.
4. Large short position. Could SCTY be a short squeeze candidate? 2.6 million shares short, up around 260,000 (11.1%) over the prior report, with a short ratio of 4.4. With a float of only 24 million and SCTY trading near its highs already, shorts must be feeling the pain and may soon start to cover and create a squeeze.
5. IPO fever. The market is hot. The solar industry is hot. IPOs are hot. And SCTY just had its IPO just 2 months ago at $8 per share and SCTY has already more than doubled. This type of momentum with a hot story and a low float tends to bring more attention as new highs keep getting printed. The chart shows a steady consistent rise on steady volume.
Keep in mind that SCTY is primarily a growth story and is not profitable, nor do analysts expect it to be profitable for some time to come. As such, SCTY moves purely on speculation about the future and company news that brings excitement to the story. Until there is solid economic performance to back up the share price, it always runs the risk of severe drops. If SCTY doesn't eventually turn profitable, it runs the further risk of eventual death, similar to what I expect from ethanol producer BioFuel (BIOF) as detailed in my previous article.
I believe the combination of the company's perpetual, recurring revenue stream from its unique business model, plus its reliable growth, will mean SCTY's cash flows and bottom line will ultimately make it a lot of money. This justifies a market cap and share price much higher than current, but SCTY is not without its risks. SCTY is set to report its 2012 earnings on Wednesday, March 6 after market close.