Vivint Solar (NYSE:VSLR) has been hot on Wall Street and packing sizzling returns in recent months. But given that recent run-up, is now a better time for investors to buy or sell Vivint stock? Let’s take a closer look to help reach a more confident risk-adjusted determination.
Many alternative energy stocks have been enjoying a standout 2020. And solar companies have played a large part in that success. The iShares Global Clean Energy ETF (NASDAQ:ICLN) whose top three holdings are solar plays, and account for 17% of the portfolio, is up 4.5% on the year. And the Invesco Solar ETF (NYSEARCA:TAN) is up about 14%.
By comparison, North American small-cap solar panel installer Vivint Solar is up 21% and has rallied almost 175% from its novel coronavirus-related March bottom. So, what gives? What’s all the hubbub for Vivint stock about? Can it continue?
Beyond the weakened noise of Trump rallies and the administration’s weak stance on climate change, the shift towards more renewable energy is a proposition most increasingly can’t deny. The fact is, even if one’s politics aren’t aligned with solar’s tree-hugging roots, continued technological advances and cost improvements have made solar competitive for complementing or even replacing other fossil fuel options. And Vivint Solar is a big part of that in today’s market.
The company’s $1.2 billion valuation obviously isn’t in the same league as technology innovator Apple (NASDAQ:AAPL), or for that matter, solar peer and industry giant First Solar (NASDAQ:FSLR). Still, Vivint is a major player in rooftop solar systems for residential and commercial use. Moreover, it’s a growing business in a larger secular trend, which still has plenty of gas in the tank.
To be fair, and not rain on Vivint stock bulls’ parade, the outfit does have its share of bearish critics putting their money where their mouths are. Short interest is a whopping 49% of the stock’s float. Much of the pessimism is likely tied to Vivint’s current lack of profitability and aggressive use of leverage, which finds its long-term debt at record levels.
All of those solar installations Vivint Solar is busy contracting for cost money through power purchase agreements and leases with customers that the company finances upfront. But don’t let the bears dissuade you, Vivint isn’t a money pit.
The company collects monthly revenue payments from its solar installations. And at the end of last quarter, its future cash flow after expenses or net retained value worked out to approximately $10 per share. Furthermore, more installations to satisfy growing demand will eventually lead to sufficient cash flow, which in turn, will require less debt.
What’s more, Vivint can also sell tax benefits and future cash flow pieces of its projects to other investors. Consider an interest rate environment at historic lows and regulators pledging the cost of capital will remain low in the wake of Covid-19, and maybe it’s the bears who need to pull up their stakes?
Vivint Stock Monthly Price Chart
Source: Charts by TradingView
It’s not without its flaws, but technically the price chart of Vivint Solar also has more working in favor of bullish investors than those harboring a bearish resolution. Shares have reclaimed their lifetime 50% level for the second time after February’s first and failed attempt. Vivint stock has also bullishly moved above the 62% retracement level of its Covid-19 corrective base and signaled a stochastic crossover to reaffirm an emerging uptrend in the stock.
All told, conditions look promising for higher prices to continue trending alongside the company’s bullish business trend. But for investors also respectful of fairly stiff share price volatility and still iffy fundamentals, a stock collar strategy makes sense.
A Vivint stock option collar is a defined and reduced risk position. And for longer-term investors, it’s also adjustable over time. This smartly allows profits to grow during persistent bullish trends. But in less hot markets, and while others are warning of end-of-day scenarios, the collar is also equally strong in allowing investors to do the less popular thing courtesy of its ironclad wherewithal.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.