In general, solar stocks have been awful for investors over the long-term, but solar stock SolarCity Corp (NASDAQ: SCTY) is up some 226.2% since the start of the year - easily outperforming the 34.4% return of the Market Vectors Solar Energy ETF (NYSEARCA: KWT). So why has SolarCity Corp, or perhaps its business model, been a winner for investors?
What is SolarCity Corp and the Market Vectors Solar Energy ETF?
Founded in 2006, SolarCity calls itself the nation's leading solar provider for homeowners, businesses and government organizations as it provides full-service solar power system design, financing, installation and monitoring services. In other words, its not in the business of trying to compete with cheap Chinese made solar panels in the manufacturing space as it merely buys solar panels and installs them for customers who then buy electricity from the company. Or rather, SolarCity sells power to its customers during the day when there is low demand while the utilities provide customers with power at night when demand is greater.
Right now, SolarCity has 31 operations centers to serve thousands of customers in Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas, Washington and Washington DC. The company says its customers include thousands of homeowners, more than 100 schools (including Stanford University), government agencies (US Armed Forces and Department of Homeland Security) and well-known corporate clients (including eBay, Intel and Walmart).
On the ETF side, the Market Vectors Solar Energy ETF was created in April 2008 and seeks to replicate the price and yield performance of the Market Vectors Global Solar Energy Index. The Market Vectors Solar Energy ETF has 34 holdings of solar stocks from around the world and a net expense ratio of 0.66%.
What You Need to Know About SolarCity
SolarCity actually has a different and evolving business model than many of its competitors who only focus on some aspect of the business (such as the financing of solar panels) and then farms out the labor portion to third party contractors. However, SolarCity recently announced it would tweak its business model by offering free “Energy Explorer” software to customers to evaluate the energy efficiency of their homes and then this software refers homeowners to contractors who retrofit houses to make them more energy efficient. The contractors will in turn pay SolarCity 10% to 20% for the referral service - helping the later's top line.
In addition, it should be mentioned that the CEO of SolarCity Corp is Lyndon Rive while its chairman is Rive’s cousin, billionaire Elon Musk of Tesla Motors Inc (NASDAQ: TSLA). That’s probably why SolarCity is now testing 8 kilowatt-hour battery packs provided by Tesla to try and reduce its dependency on utilities and the company can probably get more such work in the future.
It was also reported a few weeks ago that both Chairman Elon Musk and CEO Lyndon Rive would be upping their stakes in the company (Note: The latest filings show Musk is SolarCity’s biggest shareholder with about a 28% stake while Rive and his brother, the CTO, each have 3.63% stakes) which was also planning to offer $175 million of convertible senior notes due in 2018 (Due to an over-allotment option, the offering was predicted to exceed $201 million).
However and while SolarCity Corp has reported revenues of $128,662k (2012), $59,551k (2011) and $32,428k (2010), its bottom line consists of a net loss of $64,191k (2012), net income of $43,516k (2011) and $38,617k (2010). Also and since the company IPO’d only late last year, there are no doubt some investors or insiders who will want to unload some of their shares (the lockup expired on June 10); but again, both Musk and his cousin(s) could or have been easing the pain for outside investors by snatching up more shares.
Share Performance: SolarCity Corp and Market Vectors Solar Energy ETF
On Wednesday, SolarCity fell 6.36% to $37.74 (SCTY has a 52 week trading range for $9.20 to $52.77 a share) for a market cap of $2.84 billion plus the stock is up 226.2% since the start of the year while the Market Vectors Solar Energy ETF fell 2.2% to $48.08 (KWT has a 52 week trading range of $32.22 to $53.35 a share) for a market cap of $14.75 million plus the ETF is up 34.4% since the start of the year, up 22.8% over the past year and down 91.7% over the past five years:
For investors who are technicians along with traders, here are the latest technical charts for both SolarCity and Market Vectors Solar Energy ETF:
The Bottom Line. If you did not take the risk of getting into SolarCity earlier in the year, you might want to hold off getting into it right now and just stick to investing in the Market Vectors Solar Energy ETF. With that said, I’d bet on SolarCity succeeding over a solar stock manufacturing the panels themselves or one trying to go for big ticket solar projects.