SolarCity Corp (NASDAQ: SCTY)
SolarCity has been an incredibly interesting stock to follow as of late. As with most stocks on the market, we’ve seen quite a bit of ups and downs as the result of concerning market conditions throughout the beginning of the year. Nonetheless, I’ve been following the stock for quite some time, and I’m expecting to see growth moving forward. Today, we’ll talk about the bearish argument, the bullish argument, and why I stay on the bullish side of the fence when it comes to SCTY.
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The Bearish Argument Surrounding SCTY
The bearish argument surrounding SolarCity has more to do with debt than the company itself. The reality is that in order to grow to become the company it is today, the solar company had to take out quite a bit of debt. The reality is that the average consumer simply can’t afford to install solar systems on their homes. As a result, SCTY had to come up with a way to make it affordable. To do so, they started offering payment plans. However, someone had to pay for the products and installations while waiting on the payment plan to mature. These costs were paid by debt.
Recently, Sunedison Inc (NYSE: SUNE) filed bankruptcy as a result of the fact that it brought on too much debt too quickly. Because the company is in the solar sector, the bears are looking at SUNE as a reason to be bearish on SCTY. Essentially, bears argue that SolarCity may soon meet the same fate that Sunedison met.
The Bullish Opinion
When it comes to SCTY, the bearish opinion is indeed understandable. Nonetheless, that doesn’t mean that they are hitting the nail on the head. The reality is that the bulls have an incredibly valid argument as well. Here’s what the bulls have to say:
- SCTY Is Not SUNE – The bulls argue that there are clear differences between SolarCity and Sunedison. First and foremost, the business models between the companies are entirely different. While SUNE focused on building solar power plants and selling the power at wholesale rates, SCTY is focused on bringing the control over solar power to the consumer by installing rooftop solar systems. The bulls argue that the overall opinion with regard to how power is generated is changing, and that solar is coming in! They also argue that consumers would rather have control. This should lift demand for SCTY products moving forward.
- Debts – It is true that SolarCity has a tremendous amount of debt. Unfortunately, the company had to take on the debt in order to grow. However, the company also noticed the problem well before it became a big issue. Now, instead of taking out loans to fund solar projects, the company is securitizing blocks of projects. This will help it to avoid future debts and pass the risk of providing payment plans down to the investors in these securities. This will allow SCTY to continue to grow without amassing even more debt.
Why I Agree With The Bulls
The reality is that SCTY does have debt, there’s no denying that. However, the company found a way to stop the bleeding before it became a real problem. Considering the company’s current movements, I’m expecting more and more consumers to adopt the technology that brings control over power generation to them. With the securitized projects, SolarCity will have the money needed to grow without taking on the risk associated with it. All in all, it seems as though SCTY is headed in the right direction.
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What Do You Think?
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