SolarCity Corp (NASDAQ: SCTY)
SolarCity has had a rough time in the market as of late. However, it can be argued that the reason the stock has had such a hard times is based in unrealistic fears. Today, we’ll talk about what the unrealistic fear is, why the fear is null, and what I’m expecting to see from SCTY moving forward.
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The Unrealistic Fear That Is Holding SCTY Down
While I hate to say it, the truth is that SolarCity is the victim of unrealistic fears surrounding debt. You see, recently, a big solar company by the name of Sunedison has become the victim of the debt it created. In fact, the company recently announced that it has made the decision to file for bankruptcy. While SCTY is a completely different company, the two companies do have one thing in common. That is the fact that SCTY does have a decent amount of debt as well. So, the overall fear is that the debt SolarCity has will force it to eventually file for bankruptcy, sending the stock plummeting to the bottom.
This Fear Is Unrealistic!
While I can understand that two companies in the same sector may face the same realities no matter how harsh they may be, in this particular case, the fears surrounding SCTY make absolutely no sense at all to me! To understand why, it’s important to understand how the debt was amassed and steps that have been taken to avoid financial crisis:
- How The Debt Was Created – With other solar companies, particularly Sunedison, the debt was created through the building of massive solar power plants and even bigger acquisitions. However, when it comes to SCTY, that’s not the case at all. In fact, the end product of the two companies is completely different. SolarCity doesn’t build solar power plants. Instead, the company is focused on creating solar systems for the residential and commercial space on a customer-by-customer basis. However, there was one problem with this business model. Most people don’t have the large amount of money it costs to install solar systems sitting around. As a result, SCTY created a payment plan. However, to do so, it had to take out debt in order to cover the cost of developing and installing the solar systems. So, the ways that the debt was created are very different between the two.
- Steps To Avoid Crisis – While Sunedison did little to nothing in order to avoid bankruptcy, SCTY is completely different there too. You see, the company knew that it would be overwhelmingly difficult to continue running the business with the massive debt load that would come if something wasn’t changed. So, the company found a solution. Instead of taking out debt, SolarCity has made the decision to securitize blocks of solar projects. This gives the company the money it needs while helping it to avoid the risk of a consistently building debt load.
What I Expect To See Moving Forward
Moving forward, I have an overwhelmingly bullish opinion of what we can expect to see from SCTY. Sure, the company has debt. However, the truth is that just about any company is going to take on debt in order to grow through some phases. In this particular case, the company did take on debt, but they also created a plan to ensure that the debt doesn’t grow to an out of control point. So, the concern with regard to debt is null in my opinion. When it comes to the business itself, I’m incredibly impressed. At the end of the day, the way the average consumer views energy has changed and solar power, as well as other clean energy options, have become popular. SCTY is in the business of not only generating solar power, but putting the control of this power in the hands of the home or business owner. This is a crucial difference! Personally, I believe that it’s the difference that will lead to strong growth for SolarCity. In fact, it’s why I’ve set a price target on the stock that represents exponential growth – $34 per share over the next year is what I’m expecting to see! To see all CNA Finance Price Targets, click here!
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What Do You Think?
Where do you think SCTY is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Flickr]