Will SolarCity Stock Crumble in 2016?
Investors have soured on SolarCity Corporation (NASDAQ:SCTY) during the last few quarters, driving SCTY stock straight into the ground. Many analysts think SolarCity stock cannot possibly continue at its current rate, raising the all-important question: is this the end of SCTY stock?
It hurts me to say, but yes, it’s possible that this might be the end of SolarCity stock. The company is fighting too many battles on too many fronts. In the end, there may be no way out for the company as we know, but not for the reasons we often hear.
The damage to SCTY was driven by a narrative that’s built on equal parts fact and fiction. There were some real factors weighing down the stock, but some of them are pure fantasy. Woven together, these factors form a narrative that carved 45.03% out of SolarCity stock.
After all, low oil prices are an understandable reason to be worried about the demand for solar energy. Naturally that raises questions about the health of the company.
More to the point, SCTY stock continues to operate at massive losses. The naysayers are quick to argue that it’s doomed because of its widening losses. A key tax credit for SolarCity is expiring in the near future, which will make it much harder for the company to stay solvent.
SCTY Stock Could Recover in 2016
The first thing to look at for SolarCity stock is oil. The price of the crude oil crash in 2014 as the market grew concerned about oversupply. SCTY stock started taking massive hits as investors feared the low price of oil would erase demand for solar power.
This, of course, was a ridiculous presumption. Demand from oil and solar comes from two different sources. Solar firms like SolarCity target residential and corporate markets as a utilities provider. On the flipside, oil is mostly used for transportation services.
Of course that distinction didn’t stop investors from pummelling SolarCity stock.
However, I can’t deny that the company is now on the road to oblivion. They used to have a moonshot goal of one million solar customers by 2018. They’ve since abandoned that goal in the hopes of bolstering SolarCity stock in the short term. (Source: “SolarCity Stock Investor Presentation,” SolarCity website, August 2015.)
Moreover, SolarCity is spending more on customer acquisition than it used to. Closing each sale is becoming more expensive, and that is the main problem for the stock. SolarCity spent $163.37 on selling and administrative expenses in the last quarter, which was actually far above their revenues in the same period.
No wonder SolarCity stock took a hit. There is still enormous resistance to contemplating solar power as the alternative to traditional utilities, but SolarCity stock could have turned that around by presenting markets with a glorious vision of the future. They didn’t.
SolarCity Stock: Down for the Count?
In addition to all these headwinds, a key investment tax credit for SolarCity is dropping from 30% to 10%. The result would be devastating. As a result, SolarCity had to find a way to plug the widening gap in its income.
Investors were concerned that the company couldn’t keep bleeding cash. So management bowed their heads and threw away the one-million pledge. SolarCity will start charging its customers one cent per kWh instead of its current 0.25 cents.
From my vantage point, that concession marks the end of SolarCity. For SCTY stock to be directed by short-term cash flow concerns is utterly ridiculous. Here’s a company that’s trying to reorganize energy consumption and they’re willing to be deterred by a few speed bumps.
All in all, it’s not the weak fundamentals that will kill SCTY stock—it’s the weak leadership.