On Wednesday, shares of SolarCity (SCTY) jumped as much as 38% from their close on Tuesday.
That rally continued on Thursday, when SolarCity stock moved higher by more than 5.5%. Combined with previous upward moves over the last month, SCTY stock is now up more than 116% since Nov. 18.
What Set SCTY Stock on Fire?
First, during the first few days of December SCTY jumped 19% after news broke that an option trader had spotted unusual activity with SCTY options and added shares to his own portfolio.
While this type of news doesn’t change the fundamentals of SolarCity as a company — hence signaling to long-term investors SolarCity stock is undervalued and should be bought — it does highlight the fact that SCTY stock may be back in favor with Wall Street traders. Typically when that happens, stocks will move higher as other traders rush in to get a piece of the action.
After the big early December move, the stock leveled off until Dec. 14, when news from the previous weekend’s Paris Climate Conference hit. At the meetings, almost 200 world governments agreed to limit greenhouse gas emissions and continue moving towards clean energy.
And then we have this past Wednesday. The news prompting this jump was Congress discussing the possibility of extending the current solar investment tax credits. The proposed stepped-down credit being discussed would run through 2024. From a commercial standpoint, projects being completed by 2019 will receive a 30% subsidy, with projects beginning in 2020 and 2021 receiving a 26% and 22% subsidy respectively.
On the residential side, all projects will also see lower subsidies as they get closer to 2021, at which time the current tax credits will expire.
With analysts previously expecting solar installations to peak in 2016, prior to the 2017 tax cliff, longer-term sales and earnings estimates were bleak for SCTY and others in the industry. But, with Congress approving the tax credits on Thursday, analysts are already changing their opinions on the SolarCity stock.
Bernstein upgraded SCTY to “outperform” from “market perform” on Thursday and there are likely many more upgrades coming over the next few weeks.
The Verdict on SCTY Stock
But just because Wall Street likes SCTY stock, should you?
Yes!
While no company can guarantee billions of dollars of revenue years down the road, SolarCity comes very close. SolarCity puts solar panels on homes and offices, or at large solar farms, nearly free of charge. But with the panels comes a long-term contract, usually 20 years. So over the life of that contract, SolarCity will recoup the cost of the system and then profit.
This business model is slow, but is very stable and provides reliable cash flow — things most long-term investors want in an investment.
As for growth, SolarCity is projecting a slowdown from its past 80%-plus growth rate, but management still believes it will still grow at a 40% clip during 2016. Furthermore, with over 200 countries agreeing to increase clean energy at the Paris conference, the doors are opening all over the world for SCTY to expand internationally and become more of a global provider.
With Congress extended tax credits here at home and global opportunities opening up around the world, the solar industry looks like it has decades of continued growth ahead of itself.
And with a genius entrepreneur like Elon Musk backing SolarCity, it is hard to see how investors buying shares of SCTY today can lose.
As of this writing, Matt Thalman was long SolarCity. Follow him on Twitter at @mthalman5513.
