Trading SolarCity Can Make You Rich
As my readers would know, I am very bearish on SolarCity (SCTY) and I have recommended shorting the stock multiple times over the last few years. Heading into earnings, I recommended investors to buy put options as SolarCity has a track record of reporting terrible earnings and crashing.Following the terrible earnings report, shares of SolarCity fell over 25% in the next trading session. Shares of SolarCity tend to recover from the post-earnings drop, which is why I recommended buying the stock just a few days after its earnings report.
Since my buy recommendation, SolarCity has jumped close to 40% and the company has not only recovered the post-earnings loss, it is now trading higher than it was before earnings. For investors who did buy SolarCity after earnings, now would be the ideal time to sell the stock.
My bullish call on SolarCity was based on technical factors and I still believe SolarCity is one of the worst, if not the worst, stocks in the solar industry. My long-term price target for SolarCity is $5. Despite the massive downside potential, shorting the stock is very difficult due to extremely high borrowing rates.
The high borrowing rate is the reason why SolarCity tends to rally in the face of weak results and falling estimates. SolarCity’s results were shambolic and its earnings estimates are falling consistently as well. Despite that, SolarCity’s shares have staged a 40% rally in less than two weeks. However, I think the rally may be nearing an end and investors who did buy the stock following my recommendation should consider selling it now.
In my opinion, the ideal time to short SolarCity’s shares is just a few days before the earnings release and the best time to buy the stock would be when it crashes 20%+. Hence, I think investors should sell SolarCity now and wait on the sidelines for any of those scenarios to play out.
That being said, my long-term outlook for SolarCity is still bearish. The company’s growing debt, increasing interest expenses, and towering losses are big, big red flags and I don’t see how the company can turn its business around. In fact, in the long-term, I will not be surprised if SolarCity ends up like SunEdison (SUNE). You can only make money by trading the stock and not having a long-term position.