And the Award for the Worst Solar Stock Goes To…SolarCity

Despite falling earnings estimates and several other headwinds, SolarCity (SCTY) has recovered from its post-earnings collapse. The stock has climbed over 30% since it plunged after releasing its terrible quarterly report.

The rise is surprising given that the estimates are not getting any better as the company’s expenses are growing.

Problems are not over yet

SolarCity has turned into one of the most vulnerable stocks this year. It poorly missed its own fourth quarter 2015 and first quarter 2016 installation guidance.
Due to this, stockholders are now worried about the company’s sales and financing costs. The regulatory headwinds and financing problems troubling the residential solar sector are hitting it very hard.

It is very clear that doubling in the sales costs leads to massive problems for SolarCity. As a consequence, escalating sales efforts is only consuming whatever small amount of cash SolarCity has left. Moreover, the recent earnings reports clearly indicate that the company’s balance sheet is not in a good condition. SolarCity is making some same mistakes that SunEdison made, a lack of perspective for fiscal action, which led SunEdison to bankruptcy.

Apart from this, the company’s debt is also rising gradually, and it has sold 95 percent of its imminent cashflows for $227 million equity upfront. If the company uses this equity upfront for acquisitions instead of repaying debt, the problems will get even worse in the future. On the other hand, the main threat for SolarCity as well as other companies is regional installers.

Although the company is still leading the distributed solar industry, it is facing exceptional challenges in the long run. As a matter of fact, most key installation industries are governed by regional companies.

However, distributed solar is far more diverse and capital-intensive compared to other installation industries, which sets huge and more vertically integrated companies at a lead. But stockholders should be conscious of varying growth trends amid larger and minor distributed solar firms.


After SunEdison’s bankruptcy, SolarCity is definitely the worst solar stock that investors can buy right now. Growing debt and interest expenses point to the fact that SolarCity is headed in the same direction as SunEdison. Given the falling earnings estimates and debt concerns, SolarCity’s recent rally is unjustified and irrational. SolarCity longs should use this rally to exit the stock as SolarCity will likely head a lot lower in the foreseeable future.
Published on Jun 6, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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