SolarCity Corp (SCTY), SunPower Corporation (SPWR), First Solar, Inc. (FSLR): After Rapid Rise, Are These Solar Companies Setting the Stage for Disaster?

Over the past few weeks, SolarCity Corp (NASDAQ:SCTY), SunPower Corporation (NASDAQ:SPWR) and First Solar, Inc. (NASDAQ:FSLR) have seen tremendous market capitalization jumps. All three of these firms have outperformed the broader market by several orders of magnitude, and they have shown few signs of slowing down their seemingly inexorable rise. However, little has changed in a fundamental sense: Solar firms are still losing money at a brisk pace and remain dependent on federal tax incentives that are eventually expected to expire. Many market-watchers and financial bloggers are calling these firms’ valuations into question and advising investors to take profits immediately.

In light of the headwinds that face the solar industry, many investors and traders might be inclined to agree. However, market opinion is not uniform: Plenty of well-informed writers and investors believe that the global solar industry has reached a critical mass and stands on the threshold of a years-long boom. Investors who want to gain long or short exposure to the solar space would do well to weigh these competing arguments and take a closer look at three important players.

Recent Price Action

Despite these questionable financial statistics, all three of these companies have performed well relative to the broader market. Since the beginning of April, SolarCity Corp (NASDAQ:SCTY)’s stock has jumped from $20 per share to more than $45 per share. SunPower Corporation (NASDAQ:SPWR) has spiked by more than 100% as well, and First Solar, Inc. (NASDAQ:FSLR) continues to rise sharply. Since many market-watchers felt that these companies were already expensive at their pre-spike levels, this price action has left many seasoned traders in disbelief.

Other Noteworthy Happenings

It should be noted that SunPower Corporation (NASDAQ:SPWR) recently took out a large credit line to finance its ongoing operations. It sold the bulk of this offering to its principal shareholder, a subsidiary of French integrated oil major Total S.A. (TOT). This paints a mixed picture for the company. On the one hand, it is good that the firm can secure low-cost financing from a major oil company. SolarCity Corp (NASDAQ:SCTY) and First Solar, Inc. (NASDAQ:FSLR) do not have such an option. On the other hand, this development suggests that SunPower Corporation (NASDAQ:SPWR) may encounter some liquidity issues in the future.

Comparison

Solar City, SunPower Corporation (NASDAQ:SPWR) and First Solar, Inc. (NASDAQ:FSLR) all engage in similar areas of operation and maintain a similar mix of institutional and end-user clients. As such, comparing their financial statements and structures is a fairly straightforward affair.

For starters, First Solar is the largest of these three companies by market capitalization. Its $4.5 billion valuation is about 25% larger than Solar City’s $3.3 billion figure and about 50% larger than SunPower’s $2.2 billion capitalization. Unfortunately, First Solar is the only firm that is even marginally profitable, and its results have not yet demonstrated a sustained ability to turn a profit in the absence of significant incentives for solar manufacturers and end-users. In 2012, First Solar, Inc. (NASDAQ:FSLR) earned about $412 million on revenues of $3.6 billion. For comparison, SolarCity Corp (NASDAQ:SCTY) posted a loss of $105 million on total revenues of about $133 million. SunPower Corporation (NASDAQ:SPWR) lost $332 million on about $2.6 billion in gross 2012 revenues.