SolarCity Corp (NASDAQ:SCTY) is a darker shade of green than most today. The alternative energy company I sup more than a buck (1.83%) as we type thanks in part to an upgrade from Baird.
Analyst Ben Kallo rates SCTY as a "Buy," up from "Neutral" and fixed a $75 price-target on the stock.
SolarCity is engaged in the design, installation and sale or lease of solar energy systems to residential and commercial customers, or sale of electricity generated by solar energy systems to customers. The Company's solar energy products include Solar Energy Systems, and SolarLease and power purchase agreement finance products.
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Kallo believes recent weakness has created an opportunity to buy on the cheap, "CTY's pullback of approximately 35% since Feb. 27 provides an excellent buying opportunity, in our view, on the stock most levered to the U.S. rooftop market, which will likely undergo a boom over the next several years. SCTY's cost reductions and scale continue to strengthen its position in the market. Additionally, innovative financing products, such as solar ABS', provide relatively low-cost capital for SCTY to capitalize on the expansive U.S. greenfield opportunity."
According to utilitydive.com, "Residential solar has experienced steady, if somewhat gradual, growth to this point. But the market may be well-positioned for a boom. GTM Research sees the residential solar financing market in the U.S. growing from $1.3 billion in 2012 to $5.7 billion in 2016."
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SolarCity is at the forefront of the financing revolution. However, 2016 is far away and investors are more concerned with today. Let's see what story the sun stock's chart is telling.
SCTY's shares put in a double, short-cycle, pivot-point bottom in the area around $54, give or take fifty cents. This W like support levels comes following a rapid descent from the February 52-week high of $88.35. The $54ish stopping point creates a triangle pattern; however, Wall Street might not be done drawing the right side of the shape. If $54 fails to hold support, then a larger, more complete triangle would complete at $45ish.
On the plus side, a bullish MACD crossover under the zero line is emerging from today's price action. The technical buy signal happened twice in the past 52-weeks and is 2-for-2 on predicting a significant rally, but not immediately. The race higher commenced about two weeks after the signal.
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From a fundamental standpoint, SolarCity is more difficult to evaluate. The company isn't profitable and isn't expected to be anytime soon. In this regard, about the best you can do is look at the company from a revenue perspective.
In its limited public life, SCTY trades with an average price-to-sales (P/S) ratio of 16.68, compared to today's 28.46 time sales – gulp.
For 2014, the street thinks the company's top line will add up to $273.65 million and $450.76 next year. At the average P/S ratio, the green energy company's shares would price out at $49.88 and $82.14 using '14 and '15 consensus sales estimates, respectively.
Scarily, competitors trade at an average P/S ratio of 1.44, which would push SCTY under $10 should investors apply the same standard to SolarCity.
Overall: SolarCity Corp's (NASDAQ:SCTY) stock charts suggests there is more upside than downside at current levels; however, SCTY is expensive relative to its peer group and recent P/S history. The stock is for those investors who can stomach a 35% fall in a very short timeframe as SCTY is likely to remain volatile while its valuations are high.
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