Looking Ahead for SCTY Stock
SolarCity Corp (NASDAQ:SCTY) is releasing its quarterly earnings after the closing bell on May 9 and it could be a make-or-break moment for SCTY stock.
The rooftop solar provider already saw its share price slip 27% last week. Now, the market is desperate to find a foothold in the earnings report. Whether it’s a beat on the top or bottom line, SolarCity really needs to score a win.
If it doesn’t, the slide could soon turn into a fall. This quarter’s earnings per share (EPS) is estimated at -$2.30, down from -$1.52 in the same quarter last year.
The market is accustomed to monster growth from solar providers—we’re talking upwards of 80% year-over-year sales growth. But that kind of growth became unsustainable as SolarCity got bigger. The company’s cash flow was vulnerable.
So management started fixing the business model. It pared back expansion plans and worked to reduce SolarCity’s financing costs. Now the company is expecting 40% growth for the year with 18% in the first quarter.
That may be difficult to achieve, but it’s possible that finding a sustainable business model could raise long-term expectations for the stock. After all, the entire premise of solar investments is to get in at the bottom floor of an energy revolution. It is by necessity a long-term play.
However, short-term roadblocks could hinder the performance of SCTY stock. In the run up to this quarter’s earnings, the stock was hurt by two pieces of bad news.
First off, the CEO of a major competitor stepped down. Greg Butterfield was the chief executive officer of Vivint Solar Inc (NYSE:VSLR) during the firm’s tango with Sunedison Inc. That acquisition failed miserably, setting the stage for Butterfield’s exodus. (Source: “Vivint Solar CEO Butterfield to step down,” MarketWatch, May 2, 2016.)
One day after Butterfield stepped down, Jim Chanos reminded the market that he has a huge short position on SCTY stock. The billionaire hedge fund manager is notorious for his short-selling abilities. Naturally, that didn’t help prime SolarCity for massive gains. (Source: “Jim Chanos Speaks with CNBC’s ‘Fast Money Halftime Report’,” CNBC, May 4, 2016.)
Ultimately, the reaction to this quarter’s earnings depends on whether management can flip SolarCity’s narrative. The company was an ultra-high-growth play, but it cannot continue with ever-widening losses. Fixing its business model right now might help bolster the stock’s performance over the long haul.