SolarCity Corp (NASDAQ:SCTY): Can Elon Musk do what he has done for Tesla Motors?
SolarCity Corp (NASDAQ:SCTY) went public in December of last year. The company, led by Elon Musk of Tesla Motors Inc (NASDAQ:TSLA) fame, has had a relatively meteoric rise, climbing in six months from $8 per share to nearly $50 per share. The latest boost was due to a rosy revenue figure in the first quarter of the year. On a GAAP basis, revenues were about 20% from the first quarter of last year to $30 million, beating Wall Street estimates of $29 million. But the company argues persuasively that since the bulk of its sales are actually 20 year leases, GAAP revenues and earnings defy reality. It is also not as exposed to solar panel pricing issues as it is not a manufacturer. It is a designer and installer of custom systems for homes and businesses.
SolarCity Corp (NASDAQ:SCTY) lost $31 million in the first quarter, or $0.41 per share. It is selling for 25 times sales, and by any common measure it is overvalued. Musk may have a golden touch with electric cars, but that does not necessarily mean anything for energy. I would avoid Solar City at any price within half of where it is as I write this, or about $24 per share.
Enphase Energy Inc (NASDAQ:ENPH): An infrastructure supplier to the solar industry
California’s Enphase Energy Inc (NASDAQ:ENPH) is a niche player in the solar industry, with its main product being the inverters that help convert the sun’s direct current into grid compliant alternating current. Therefore, its financial health is entirely dependent on the steady growth of home and business solar systems.
The company struggled in the first quarter with a loss of $10.4 million, roughly the same as last year. But the company also supplied a rosy view of the quarters ahead both in revenue and in margins. Analysts see the company swinging to profitability in 2014. I believe more strongly in solar than in wind as a baseload power source going forward, and can see Enphase Energy Inc (NASDAQ:ENPH) having a role in this growing distributed energy trend. It makes a fine choice for the risk-tolerant investor.
Conclusion
Solar energy, whether distributed or utility scale, is a permanent and growing part of our electrical generation worldwide. There is room in the industry for many players, yet with risks of technological change (First Solar) or another financial recession collapsing the housing market (Solar City) the industry is obviously not without peril. Tread with care.
The article The Solar Industry Welcomes Growth, But Investors Beware originally appeared on Fool.com and is written by Bill Edson.
Bill Edson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Bill 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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