SCTY Stock — SolarCity Is All About The Consumer
Unlike FSLR and most other solar stocks, SolarCity doesn’t focus on the grid-scale space, but on the consumer. SCTY doesn’t actually make panels or wafers, but it installs such products for residential and small commercial clients. It then makes money by leasing these installations to the homeowners and businesses for a monthly fee.
That focus on installation has kept SCTY stock on a torrid run. Overall, SolarCity managed to more than double the number of installed panels during the last quarter to reach a record 103 megawatts. That brings the total number of contracts on SolarCity’s books to nearly 80,000. Forward guidance shows that SolarCity expects to install around 82 MW of panels for the current quarter and around 525 MW for all of 2014.
However, the actual financial impact of these increased bookings and contracts for SCTY stock isn’t known just yet.
The problem for SCTY stock is that it’s actually more like a bank rather than a traditional homebuilder or contractor. Unlike other solar stocks, SCTY uses a variety of asset-backed securities, debt and tax credits/subsidies in order to create leases for homeowners and business and thus generate its income and profits. Some analysts have called this solar stock a “black-box” of accounting.
This fact has recently come to a head as SCTY stock has been forced to delay its earnings report (twice) for the current quarter as it tries to allocate its costs from a few recent acquisitions under GAAP rules. Accounting issues are never good for a firm, and this highlights some of the potential “black-box” issues at SCTY.
However, the market doesn’t seem to care, SCTY stock has rallied on both delay announcements.
FSLR vs. SCTY Stock: Best of the Solar Stocks
For investors looking at the duo of solar stocks the decision comes down to what you’re actually looking for — a trade or an investment.
FSLR stock may have the upper hand as a better long-term investment. By focusing on utility scale installations across the globe, it’s more of a stable solar-power play. After all, a major utility company generally doesn’t fork over hundreds of millions of dollars without making sure a project’s cash flows will be adequate over several years. That fact makes FSLR stock a great long-term investment in the space.
On the other hand, SCTY stock is about the trade. Currently, the market for personal solar installations in places like California are pretty lucrative. But as we’ve seen, subsidies can make or break renewable energy. Given its budget problems, California could very well cut these tax breaks for homeowners. Likewise, another housing bust could seriously impact SolarCity in its core markets. In the meantime, SCTY stock continues to rally unabated — despite zero profits and accounting issues. That reeks of momentum rather than underlying fundamentals.
The bottom line: For investors interested in solar stocks, FSLR stock offers a more stable approach, while SCTY is strictly a trade.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.