Score one for Forbes, at the expense of Barron's. With today's big jump from SolarCity Corp. (NASDAQ:SCTY) shares, an article appearing on the latter's website a few weeks ago alluded to the possibility that the company might need to raise funds to meet certain obligations ... the last thing shareholders want to hear. A few hours later, a commentary at the former's website swooped in to repair the damage being done to SCTY, largely by reframing the issue. Though "right" and "wrong" might be too strong to use as description of how things have played out for the stock in the meantime, using the terms "relevant" and "irrelevant" wouldn't be a stretch - William Pentland's article at Forbes appears to be the more relevant of the two, at least to investors, judging from the stock's action today.
To be clear, Pentland's write-up didn't cause the 20% jump from SolarCity shares today. Encouraging news about the amount of capacity installation the company aims to add in 2014 is doing today's heavy lifting - SCTY expects that in 2014 it will nearly double 2013's number of installed solar panels. Some of that is organic growth; some of it is due to acquisition. Whatever the case, traders clearly love the news.
SolarCity isn't a solar panel manufacturer. It's a solar panel installer, though one that's deeply engrained into the industry's overall success. See, SolarCity Corp. is also the go-between for customers who would like to utilize solar panels, but can't afford the upfront costs. SCTY essentially finances the purchase of the panels, using government subsidies designed to encourage solar power usage as its upfront source of needed cash. SolarCity even buys the excess power generated but not needed by most of the rooftop panels it installs, making the scheme even more affordable for end users.
The point of contention from Barron's columnist Avi Salzman was that SCTY was overstating the cost of the solar panel systems it was installing, thereby giving the company an excessive subsidy.
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Was the company doing this? Possibly. Maybe. And, the Treasury Department has expressed concern that the company's books don't look all that healthy, and that its financing partners have a lot of claims senior to shareholders' stakes. But, there's no actual proof that SCTY is overpricing its solar panel systems, and therefore overcollecting subsidy money.
Thing is (and as Pentland largely argued), that was never really the point here. The market decided it agrees with Pentland today, pushing the stock up 20%, and within reach of the young stock's all-time high around $52.00 in May of this year; SCTY last traded at $46.59.
So what exactly are SolarCity newcomers getting with their investment in SCTY? That is, after all, the point. They're buying into a $3.6 billion company that's done $125 million in revenue for the last four quarters. Assuming it can actually crank up installed capacity in 2014 by the projected 90%, that should put the company on pace to generate around $250 million in sales for 2014. It won't likely push the company onto the black, however - SolarCity Inc. lost a whopping $106 million over the past four quarters ... almost as much as its top line. Perhaps that should have been Salzman's bigger concern.
Doubling installations or not, SCTY is still way off from a reasonable valuation.... even by crazy solar power standards. It's most definitely the kind of thing that forces an individual to decide if he's an investor, or trader. The short-term euphoria has "trade" written all over it. For the long haul though, the metrics for subsidy-supported SCTY don't look particularly scalable.
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