SolarCity (SCTY) Stock: This Is Not Another Sunedison (SUNE)!

SolarCity Corp (NASDAQ: SCTY) | Sunedison (NYSE: SUNE)

SolarCity has had a rough time in the market over the past few months, and for good reason. The company has an exorbitant amount of debt and investors are concerned that it may turn into the next Sunedison. However, others, including myself, believe that this could end up to be an incredible opportunity. Today, I’ll explain the similarities, the differences, and why now is likely the time to start investing in SCTY.

The Two Things That SUNE And SCTY Have In Common

When it comes to Sunedison and SolarCity, there are two big similarities, and one of them really scares SCTY investors. Here they are:

  • Solar – SUNE and SCTY both focus on relatively the same product. They are both solar companies. So naturally, they are both at the whim of what happens in the solar market. Obviously, positive news with regard to the solar industry overall will have a positive affect on both of these companies while negative news will yield negative results. However, this isn’t the similarity that is causing fear for investors.
  • Debt – When it comes to the one similarity between SUNE and SCTY that is freaking out investors, it’s debt. You see, both of these companies have amassed a massive amount of debt in order to grow their businesses to become what they are today. Now, don’t get me wrong, Sunedison does have far more debt than SolarCity. However, they both have a relatively large amount of money to pay back. Let’s face it, debt is one of those things that investors hate to see companies inundated with.

The One Thing That Sets These Companies Apart

While SUNE and SCTY both have a large amount of debt and they both focus in the solar industry, there is one main difference between the two companies; That is their business model. You see, Sunedison is largely focused on building solar power plants. Once the plants are built, the company turns around and sells the energy generated by the power plants to utilities companies at a wholesale rate. So, for SUNE, the debt that the company has gotten itself into was taken out for the funding of these solar power plants.

On the other hand, SCTY has a very different business model. Instead of building solar power plants and selling the power to utility companies, SolarCity is focused on installing solar systems on residential and commercial properties, putting the power in the hands of the home or business owner. The reason that SCTY has such a massive amount of debt is that the average consumer simply can’t afford the large price tag that comes along with building solar power plants. As a result, they started a financing program. However, they had to take out debt in order to finance the massive amount of projects the company is working on.

Why SCTY Is The Stock To Buy

Now, I know that it seems like these companies are almost identical. The only difference is the business model – and of course, the fact that SCTY isn’t in a massive amount of trouble at the moment. Oh wait!  There’s another similarity here. SolarCity saw the problem before it happened and likely will not ever be in dire straights like SUNE. You see, SCTY noticed the large amount of debt it was getting itself into. So, the company made the decision to securitize blocks of solar projects. Under this plan, investors take on the risk, rather than the company. The best part is, the investors make investments in the projects, so SCTY doesn’t need to take out more debt to continue with growth. The reality is that with the new plan, SCTY has positioned itself for strong growth with little risk, and if you ask me, that’s something worth investing in.

What Do You Think?

Would you invest in SUNE or SCTY? Why? Let us know your opinion in the comments below!

[Image Courtesy of Flickr]

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