SolarCity (SCTY) shares have taken a big beating over the past month, with shares down close to 30%. The broad market sell-off, coupled with investor lawsuits alleging that the company is in violation of Federal Securities laws have led to a massive crash in the share price.
As reported by Benzinga (via Yahoo! Finance) -
The Shareholders Foundation has initiated a lawsuit against SolarCity on behalf of some of the company's shareholders who allege the company is in violation of Federal Securities laws. Specifically, the lawsuit is focusing on the company's announcement on March 18 that previous financial statements should no longer be relied upon.
While this seems like a problem for SolarCity at present, investors shouldn't forget the fact that the company plies its trade in a fast-growing solar industry. This is why investors should consider SolarCity's recent drop as an opportunity to add more shares to their portfolios.
SolarCity has seen significant growth in its core business, as the company experienced a year-over-year increase of 78% in megawatt deployed to 280 MW in 2013. It also posted lease revenue growth of around 80% year-on-year. SolarCity has significantly improved its operational and capital expenditures by reducing costs in both these segments. As a result, SolarCity almost touched its break-even point and delivered positive net cash flow for 2013.
SolarCity's business is being driven by higher MW deployment, and the company is trying hard to turn profitable with its four major operational and financial strategies, such as installing more solar roofs, reducing fully loaded cost of installations, reducing cost of capital, and generating positive cash flow.
Going forward, SolarCity will undoubtedly benefit from increased volumes in residential and commercial deployments. These deployments accelerated its revenue in the fourth quarter. Going forward, the company expects to deliver better results in the first quarter of 2014, with additional investments made in the deployment of MW in both residential and commercial segments.
Looking ahead, in the current quarter, SolarCity is expecting to deploy megawatts in the range of 78 MW to 82 MW, and is confident of hitting its yearly target of deploying 475 MW to 525 MW. Also, SolarCity is determined to enhance and leverage its operations through third-party investors who are planning to finance its various renewable energy projects. As such, SolarCity will be able to utilize hefty government tax credits for these renewable projects.
In addition, SolarCity's number of energy contracts has increased significantly. The company now has a total of 80,000 energy contracts worth $2 billion. With these numbers rising on a regular basis, SolarCity looks well-positioned for the long run.
SolarCity has also reduced its cost of installation drastically, with various cost-saving initiatives, such as opening a centralized account management system in Las Vegas, and opening 10 new operation centers in the fourth quarter. The company has now increased its operation centers by 50% to 46.
In addition, SolarCity reduced its fully loaded cost of installation to 30%, with improvements in operational efficiency, improvisation of processes, such as hardware for both residential & commercial and offices, and economies of scale, such as reduction in the cost of batteries. Furthermore, SolarCity has reduced its cost of capital through securitization, and at the same time, it has increased its capital resources.
SolarCity has continued to invest in technology and services to differentiate itself and create a competitive edge over peers, while also creating a value proposition for customers across the world. In addition, SolarCity recently acquired Zep Solar for $158 million, along with direct marketer Paramount Energy Solutions for $120 million. These acquisitions should add diversity to SolarCity's product line, while also strengthening its marketing force.
Solar market prospects
Additionally, SolarCity is focused on grid integration and storage, as solar's adoption is continuously increasing worldwide. The moves highlighted above will certainly help SolarCity stay ahead of peers and increase its market share. The company is aggressively investing in its sales and marketing teams to grow bookings in residential and commercial sectors.
According to NPD Solarbuzz, the solar industry is growing at a terrific pace. Solarbuzz states that:
The solar PV industry has reached a critical tipping point, with end-market demand hitting record levels almost every quarter. This growth is being driven by leading module suppliers and project developers that returned to profitability during 2013, and which have now established highly-effective global sales and marketing networks.
The new record level of demand in 2014, along with increased outsourcing of solar PV wafers, cells, and modules to keep up with end-market growth, will drive production utilization rates above 90% for tier-1 manufacturers.
By the end of 2014, many of the leading Chinese crystalline silicon module suppliers will be reporting silicon and non-silicon costs below $0.50 per watt. The resulting growth in operating margins will then provide a solid foundation upon which to guide new capacity additions that have been on hold now for 18 months.
Hence, SolarCity is in a solid position to make the most of this market, and its investments in key areas should put it in an advantageous position going forward. SolarCity doesn't have a trailing or a forward P/E ratio, since it is still unprofitable, but the company delivered 101% revenue growth in the previous quarter, and a PEG ratio of just 0.53 indicates solid growth ahead. Investors should consider buying SolarCity after its recent drop.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.