Many solar stocks have been deep in the red since entering 2016; and unfortunately, SolarCity Corp (NASDAQ:SCTY) stock is one of them. Year-to-date, SolarCity stock has lost more than 45% of its value.
But that doesn’t mean you should give up on the company. In fact, there are quite a few catalysts that could help SCTY stock climb back up again.
SolarCity is in the residential solar business. For consumers to choose SolarCity, they need to see savings on their electricity bills. In the past, homeowners who wanted to put solar panels on their rooftops faced high installation costs. Now, thanks to SolarCity Chairman Elon Musk’s advice, customers don’t have to worry about that.
What Musk suggested was Power Purchasing Agreements (PPAs). This means consumers don’t have to pay a penny when SolarCity installs solar panels on their rooftops. Instead, they would buy electricity from the company at a very low price.
To understand the appeal of what SolarCity is offering, let’s look at some numbers. In California, the old average utility bill for a residential consumer (based on tier pricing) is estimated to be around $2,256 per year. If the consumer were to use SolarCity’s PPAs, the new average bill would be approximately $1,848 per year. That’s 18% savings starting from day one! (Source: “Investor Presentation,” SolarCity Corp, February 2016.)
Great savings for consumers is a good thing, but SolarCity also needs to make money. Luckily, the company’s bottom line can benefit from its cost advantage.
On the module side, SolarCity is benefiting from integrated module production. The company’s “Silevo” modules can achieve module efficiency of 21% to 22%, which represents a big improvement from the traditional silicon module’s efficiency of around 15%.
On the installation side, SolarCity has its proprietary mounting hardware called “Zep,”, which requires fewer components and labor hours compared to traditional mounting hardware. And since SolarCity is paying for all the upfront installation costs, Zep creates savings for the company. At the same time, solar panels with Zep also look better.
Huge Market Waiting to Be Explored
So far, SolarCity has done a great job. The company is the largest U.S. residential and commercial solar installer. It was responsible for installing 28% of distributed solar and 15% of total solar in the U.S. in the first three quarters of 2015.
However, there is still a huge market waiting to be explored. Solar adoption has surged in recent years, but among all residential and commercial buildings in the U.S., solar penetration is below one percent. In SolarCity’s primary service territories, distributed penetration of single family homes is still below two percent.
This means there is a lot to be done. Good news is the company has the infrastructure in place to service its potential customers. SolarCity has 81 operations centers, meaning it is within 30 minutes of 90% of the population in its service territory.
Going forward, the company expects 1.25 GW to be installed inof 2016. That would represent over 40% growth year-over-year. (Source: “SolarCity Fourth Quarter 2015 Shareholder Letter,” SolarCity Corp, February 9, 2016.)
The Bottom Line on SCTY Stock
There you have it. The sentiment might not be that great around the solar industry right now. But if the company manages to continue growing its business, SCTY stock could become attractive again.