It's pretty easy to tell when investors don't like a stock.
They sell. And when investors really don't like a stock they sell
its shares short.
A recent Business Insider article listed the 30 most heavily
shorted companies by stock market traders. One theme stood out in
the piece: investors really hate solar stocks these days.
all appeared on the list, each with more than 25% of shares sold
Should you hate solar stocks, too? Photo credit:
Flickr user Ewen Roberts
A new lease on solar
SolarCity is a full-service solar provider. It designs, finances,
and installs solar panels on the rooftops of homes and business.
The company's financing strategy makes it unique in the industry,
as SolarCity has popularized the solar lease. For no up-front
costs a homeowner can have solar panels installed on a house and
lock in a lower energy bill for the next 20 years. This has
revolutionized the solar industry, as customers no longer need to
spend tens of thousands of dollars to buy the solar panels;
instead they lease them from SolarCity for a low monthly payment.
This strategy has sent SolarCity's shares up by more than 500%
since the company went public at the end of 2012.
That surging stock price has investors worried, which is why
nearly a third of SolarCity's shares have been sold short.
Investors see the company trading at lofty multiples like 33
times sales and hate to think what might happen if sales growth
cools. Furthermore, the company continues to lose money each
quarter, with no end in sight.
That said, SolarCity expects to grow its customer base to 1
million by 2018. That lofty target would be a 70% annual growth
rate. So, while many investors hate this solar stock, its future
looks bright, suggesting that those short-sellers might be the
ones getting scorched.
Flickr user Living Off Grid
Scorching hot stock
SunPower has the largest installed base of solar panels in the
United States. The company also leads in efficiency, as its
latest panels are 44% more efficient than conventional panels.
This has yielded surging sales in recent years, along with a
spiking stock price: In just the last two years the price of
shares has risenmore than 700%.
Investors worry that the stock is running hot, which is why
more than a quarter of SunPower shares have been sold
short.However, this company has a bright future. SunPower
estimates it has the potential to build more than 350 commercial
and power plant projects in over 30 countries in the
future. That represents eight gigawatts of capacity. While
the company won't build all of those projects, its pipeline of
future growth opportunities isn't dimming one bit.
Another sizzling stock
SunEdison is a global leader in the manufacture and sale of
wafers and other materials used in the semiconductor and solar
industries. Like its peers, the stock has been scorching hot --
up 885% in just the past two years. Investors worry they'll be
burned if the stock cools off, which is why just over a quarter
of its shares have been sold short.
The company, though, sees a massive addressable solar market,
as noted on the following slide.
Source: SunEdison Investor Presentation
The addressable solar market is expected to grow about 13%
annually through the end of the decade. Furthermore, it
represents a $1 trillion in cumulative capital. That's a lot of
money, especially when considering that even after its run over
the past two years, SunEdison's stock value is just over $5
billion. That suggests the future of the company's stock could be
brighter than investors think, as just a tiny sliver of those
sales would move the needle.
Investors see the surging stock valuations of solar stocks and
worry they'll be burned. That's why a quarter or more of the
shares of these solar stocks are being sold short. I'd counter
that these investors might be short-sighted, because the future
of solar looks brighter than ever.
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Why Do Investors Hate These Companies?
originally appeared on Fool.com.
owns shares of SolarCity. The Motley Fool recommends SolarCity.
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