SCTY Stock Continues Crushing Other Solar Stocks

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This year hasn’t been a particularly good one for some solar stocks. Since the end of 2013, oft-market-favorite First Solar (NASDAQ:FSLR) is in the hole a little more than 5%.

SCTY-stock-solar-stocksShares of Chinese player JinkoSolar Holding (JKS) were only up about 2% year-to-date before today’s 4% jump. While some solar stocks have done better, including the all-encompassing Guggenheim Solar ETF (TAN), by and large, 2014 hasn’t been an easy year to remain optimistic about solar plays in your portfolio.

There’s one compelling solar name that has done quite well in recent weeks, however … SolarCity (SCTY). SCTY stock is up an impressive 30% year-to-date, and from a technical perspective, it looks ready to rekindle its recent bullishness.

The relative performance of SCTY stock compared to that of JKS stock or FSLR stock begs two simple yet potent questions from thorough investors: What makes SCTY stock so much better than other solar stocks, and how long can that bullishness last?

SolarCity: The Same, But Different

SolarCity isn’t like most of the names batted around when investors talk about solar stocks. Whereas JinkoSolar and First Solar almost exclusively manufacture photovoltaic panels and the hardware required to make them function, SCTY is a facilitator of solar power solutions.

It provides its customers with installation of solar panels, the pre-installation consultation and design that should take place before an installation, and perhaps most important of all, it provided solar power system buyers with affordable financing solutions.

As it turns out, the decision to package several areas of expertise and solutions under one roof was a brilliant move, for a couple of reasons.

For starters, though most consumers were and still are “pro solar”, most of those consumers haven’t a clue about how to go about putting such a system in place. While panel makers may be technological geniuses when it comes to manufacturing solar cells, most of them simply weren’t prepared to connect with retail buyers. SCTY bridged that gap.

The other reason SCTY stock has been a big winner for shareholders? It’s specifically not a panel maker.

For all the buzz that the solar industry has generated since 2007, it’s still not a profitable venture. The reason most panel makers are still losing money — despite a sharp decrease in global production capacity in addition to a solid increase in consumer demand (now that solar panels are affordable) — is lingering overcapacity and a lingering uncertainty regarding affordability.

As a middleman that can make make solar panels affordable and feasible for consumers, though, SolarCity couldn’t care less about the financial mathematics of panel manufacturing.

So, what’s next for SCTY stock?

A Look Ahead for SCTY Stock

While SCTY stock has an obvious advantage over other solar stocks, it’s not as if SolarCity is bulletproof. Its all-inclusive business model is simple, and obvious, and therefore can be mimicked by an organization taking aim at the category leader.

In fact, that’s already happening. Solar financier RGS Energy (RSOL) and residential installer Vivint have already joined forces to offer customers a combination of installation and solar power system leasing. Solar financing outfit SunRun recently acquired panel installation outfit REC Solar. More vertical consolidations are on the way too, each of which will make life a little tougher for SCTY stock.

Yet, SCTY stock holders still have more going for them than against them, with one of the biggest reasons simply being that SCTY has such a big head start in terms of market share and presence. The most potent of the company’s positive aspects is how the lease-to-own idea is now getting some serious traction.

At $20,000 (or more) for an installed system, the average consumer simply can’t swing the cost. But by leasing a system technically owned by the financing company (a 20-year lease is typical), power users find the monthly cost of solar panels is cheaper that using their utility company’s electricity.

As proof that the idea is catching on, $3.34 billion worth of U.S. solar leases were funded by solar power financiers in 2013, up 68% from 2012’s $1.98 billion worth of solar panel leasing.

That big growth should continue on this year, and for many more years, as less than 1% of the United States power is produced from solar panels. Goldman expects rooftop installations to grow at a pace of 45% per year through 2016, and even with lots of budding competition, SCTY is still at the top of the list of solar stocks for those future customers.

Bottom line? It’s still too soon to talk about net earnings from SCTY stock, but like a biotech company working on a breakthrough drug, the company’s prospects for several years from now are enough to keep bullish pressure on the value of SCTY stock in the near-term and the long-term. Normal valuation models don’t apply.

It’s all about the story, and theSCTY stock story is still a good one — one of the best among all solar stocks, in fact.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/02/heres-scty-stock-leading-solar-pack/.

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