SCTY Stock Could Skyrocket
SolarCity Corp (NASDAQ:SCTY) has been on a roller coaster ride for the last 12 months. SCTY stock has crashed, surged, and crashed again, all while demand for solar energy kept growing. What is going on here?
Let me repeat that so you can see how absurd it is: solar demand was rising, but the market kept dumping SolarCity stock.
It didn’t make any sense on the surface, so I took a closer look. And what I found blew me away.
SolarCity has been buried under a heap of criticisms by bears who simply don’t understand the company.
They continually hold up SolarCity against its competitors, measuring things like debt-to-equity and price-to-earnings. “Look how much debt they have!” scream the critics (in their very finite wisdom). “Why are they so leveraged compared to other solar companies?”
I can’t believe how stupid they are.
Sorry to disappoint those half-baked theories, but it doesn’t make sense to compare SCTY stock with the likes of First Solar, Inc. or Canadian Solar Inc.
Each company has a completely different business model. SolarCity provides a leasing option for residential solar panels, whereas First Solar sells power to a utility company and Canadian Solar sells very specific parts. The dynamics are varied.
Solar Bonds Could Save SolarCity
Here’s how you should think about SolarCity. If you took all its assets and subtracted all the liabilities, you’d be left with $857.1 million. That’s the book value. Yet the company is only valued at $1.8 billion. Can investors really think this company is only worth 2.1 times its book value? That seems crazy! (Source: “SolarCity Corp Form 10-K Filing,” Securities & Exchange Commission, February 10, 2016.)
I think the real problem is that investors are scared. They’re scared to take a chance on something that’s completely new, something that could change the game. They claim to be forward-thinking, but really, they’re all looking backwards.
They’re looking back at all the great investments they missed, all the chances they didn’t take. And they say, “The next time that chance comes along, you better believe I’m going to take it!”
The trouble is those moments of opportunity never look exactly the same. There won’t be another company like Apple, because the smartphone market is oversaturated. It has to be something we’ve never seen before and you need the courage to invest in it early.
At one point, investors did have that kind of optimism about solar energy. It was almost exactly two years ago when SCTY stock hit a peak of $87.00. None of the reasons for that optimism are gone…in fact, they’ve gotten much more persuasive.
It’s now clear that solar demand is booming on the ground. SolarCity’s sales jumped almost 70% year-over-year, so I don’t see that point as debatable. Americans want more energy independence and they’re getting it from solar power.
At the same time, prices for solar panels are plummeting and their efficiency is growing. All the reasons are there, but investors haven’t turned the corner yet. When they do, it’s likely the stock will see a dramatic shift to the upside. It’s simply a matter of confidence.
But when investors realize that a price-to-book ratio of 2.1 is simply too low for such an innovative company, we could see SCTY stock return to $87.00. That could represent a 356% gain from today’s price.