Does SolarCity Have 218% Upside?
Price targets are meaningless
Investors shouldn’t trust the price targets of large banks and firms as they hardly ever come to fruition.
However, the irrational exuberance doesn’t last long as fundamentals catch up with the reality really soon. In the case of SolarCity, I find Credit Suisse’s target foolish and unjustifiable as I think the fair price of the stock is around $10 (barring an extremely unlikely Elon Musk acquisition of course).
SolarCity’s business model is terrible as the company is in dire need of financing just to fund its growth. SolarCity’s debt has swollen so much that the company’s interest expense almost completely wipes off its gross margin.
Also, given that SolarCity’s SG&A expenses and other expenses have also been increasing at a faster rate than its revenue, it is impossible for the company to ever turn profitable. If you take a look at SolarCity’s financials, you will notice that the company’s debt and expenses have outpaced its revenue growth. Thus, I don’t see how SolarCity will manage to sustain its current price, let alone move higher by 218%.
SolarCity loses hundreds of millions of dollars every quarter and I believe it is impossible for it to ever turn profitable. Hence, despite the recent rally, I would still recommend investors to short the stock.
SolarCity’s financials highlight the fact that the company’s business model is terrible and unsustainable. SolarCity loses hundreds of millions of dollars every quarter and its expenses are growing at a faster rate than its interests. I don’t see how the company will ever turn profitable. As someone who has been bearish on SolarCity ever since the stock was near $70, I think the recent rally has opened up a great shorting opportunity for investors.
Published on Apr 11, 2016By Ayush Singh