Vivint Solar Stock: A 50% Return May Be Only the Start

VSLR stock
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Vivint Solar to Burn Higher on the Chart

The outlook for the solar industry remains somewhat of a question mark, given the Trump administration’s support for fossil fuels and coal energy. While we have yet to see major policy changes to alternative energies, we are seeing tariffs on imported solar panels and perhaps a review of credits for installing green energy.

The reality is that green energy—including solar, wind, and water—have created hundreds of thousands of American jobs, and I don’t believe the government will do anything radical that would hurt job creation.

The solar industry was burning hot in 2014, when the sector was all the rage, as the world moved toward a greener environment.

The problem was that solar companies added excessive debt in order to grow. That would ultimately lead some companies to bankruptcy.

The good news is that the solar industry has been dealing with its debt loads, resulting in solar companies that are now in better shape for a possible renewal.

A small-cap that looks intriguing is Vivint Solar Inc (NYSE:VSLR), with a market-cap of about $474.0 million.

VSLR stock surged to a 52-week high of $6.09 in July 2017 on an upgrade from Goldman Sachs Group Inc (NYSE:GS). Vivint Solar has since retrenched back to the $4.00 level, but it has been outperforming the S&P 500 over the past 52 weeks with a 39% advance.

Vivint Solar is not your typical solar play. The company provides solar energy solutions for residential homes. Vivint Solar doesn’t make solar panels and parts, but rather sources them and simply acts as an installer and service provider.

Revenues Surging for VSLR Stock

The revenue picture is impressive, with Vivint Solar growing its revenues from $25.3 million in 2014 to $135.2 million in 2016, representing a compound annual growth rate (CAGR) of over 100%.

Vivint Solar is estimated to ramp up revenues by 98.4% to $268.2 million in 2017, prior to some normalization of the growth rate to 24.7% ($334.4 million) in 2018. The lower growth metric is generally the case with many smaller companies growing their revenues. (Source: “Vivint Solar, Inc. (VSLR),” Yahoo! Finance, last accessed January 12, 2018)

Of course, revenues could be hampered in the future, should the Trump administration decide to lower or cut credits for solar installation, which would negatively impact VSLR stock.

While Vivint Solar is increasing its revenues, the company has yet to turn a profit. But the losses are narrowing, and we are seeing upward revisions from Wall Street.

The move toward declining losses is encouraging, especially given that Vivint Solar still has about $800.0 million in net debt on its balance sheet.

The debt—at about two times the market cap—is a major risk, but my view is that, as long as Vivint Solar can cut its losses and move toward profits in a few years, there should be no problems.

Analyst Take

On a valuation basis, VSLR stock’s attractive 0.8-times book value, together with its price/earnings to growth (PEG) ratio of 0.26, suggest that the outlook for profits is positive.

A look at the chart shows Vivint Solar stock declining after trading at the $18.00 level in October 2014.

VSLR stock fell to $2.65 in May 2017, prior to surging to over $6.00 in July, but this was shortlisted as Vivint Solar plummeted to the $3.00 level in September and December, where we saw decent buying support.

VSLR stock chart

Chart courtesy of StockCharts.com

The stock has broken higher to above $4.00 and appears set to take another run at $5.00 to $6.00, representing an initial return of 50%, and perhaps much higher.