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Summary

  • SolarCity reports Q214 earnings.
  • Investors should continue avoiding the stock with a potential short setup.
  • The mounting losses and stock action confirm analysis that the valuation is maxed out.

No question that SolarCity (NASDAQ:SCTY) has huge momentum with off-the-charts growth. The provider of solar energy to homeowners and businesses continues to see eye popping deployment and bookings of solar systems. For Q214, the company deployed 107 MW, up 102% year-over-year. Total bookings were up 216% over the same period last year to 218 MW. The substantial revenue generation movements were met with equally surging expenses. Operating expenses soared over 100% to $97 million leading to a substantial increase in loss per share to $0.96. More importantly, the loss number continues to grow every quarter and further success in selling solar systems adds to the losses.

The stock has struggled since the earnings release with the company pushing out being cash flow positive for 2014 and widening of losses to $1.15 at the midpoint for Q314. Analysts had previously estimated losses of near $1.00 prior to the quarterly report. On the flip side of these loss forecasts, SolarCity projects that retained value of existing contracts is now $1.8 billion. In essence, the company forecasts that the value on the remaining term of 20-year energy contracts plus a projection for additional 10-year contract extensions is only 26% of the current market valuation. Nearly 50% of that value is based on what customers due with the contract extension that is on average nearly 20 years away.

The previous investment thesis in the article "SolarCity: Will Going Vertical Add Value?" remains intact. The previous concerns from going vertical weren't alleviated from the Q214 report due to the lack of discussion on the Silevo acquisition that won't close until the end of August. The stock remains controversial, but investors must question the cost structure and the value of the stock when the company itself projects a substantially lower retained value. The momentum behind the stock makes it impossible to short at these levels, but the stock is dangerous to own long. Very few stocks continue gaining value with losses mounting and cash flow projections missed.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a short position in SCTY over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.