Tesla and SolarCity are also linked together by their management. SolarCity’s co-founders, Lyndon and Peter Rive are Elon Musk’s cousins.
Musk is the co-founder and CEO of Tesla Motors. Tesla launched a network of charging stations that will cover 98% of the US population and parts of Canada by 2015. SolarCity provides solar power for some of those stations and since Musk promised that the service will be available for the whole life of the Model S (Tesla’s second car), it seems like SolarCity Corp (NASDAQ:SCTY) secured a solid source of revenue.
Even if the revenue made in partnership with Tesla only represent a fraction of what SolarCity makes quarterly, it is interesting to see the evolution of the stock price in correlation with Tesla’s:
Both companies already experienced tremendous growth and are considered expensive by almost all valuation systems. But if they successfully diversify their revenue sources like with those two particulars projects, we might have to reconsider the potential for more upside on their future growth.
DoD money
Investors are always looking for companies that will be awarded some contracts from the Department of Defense. SolarCity is one of them. It announced the SolarStrong Military Solar Project, a plan to provide solar power to up to 120,000 military housing units. On July 24, SolarCity announced the installation of solar power systems for 7,500 military homes in Hawaii.
In parallel with the SolarStrong initiative, SolarCity is part of a veteran hiring program. The company employs over 100 veterans. Veterans are often hard working individuals and are quite efficient at their work. For those reasons, I always like it when a company is employing workers with a military background, on top of all the incentives from the government.
SolarCity as an investment
You will note that I did not go in details about the solar industry, whether or not it is a flourishing industry is another discussion. SolarCity does not actually manufacture solar panels, so it can qualify as a simple energy provider.
Currently trading at a forward P/E of -28.2 while holding a market cap of $3 billion with only $133 million in revenue last year, it might seems like a terrible opportunity. But with sales growing 116% and government contracts flowing in, if the company can efficiently manage its debt while growing the market (SolarCity only offers its services in 14 states), we could see SolarCity becoming a major player in the energy sector.
If you are looking for a stock with high dividends, you can stop right here. SolarCity is not profitable and will not be for years to come. It offers financing programs with decade-long contracts. If it turns a profit, it means it stopped growing. What you need to be looking for in SolarCity’s growth is the number of new customers and debt management. If it manages those efficiently, it will be successful.
The stock price went up 24% after the last earnings report. SolarCity Corp (NASDAQ:SCTY) predicted between $21 million to $28 million in sales during the second quarter. It will release the results after the market’s close on Wednesday, Aug. 7.
The article My Pick in the Energy Sector originally appeared on Fool.com and is written by Frédéric Lambert.
Frédéric Lambert owns shares of Tesla Motors and SolarCity. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Frédéric is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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