SolarCity Corp: Don’t Bet on a Sunny Future (SCTY)
The last time we spoke about SolarCity Corp ( SCTY ) its chart told us one thing while the fundamentals said another. The stock was beginning a breakout move above its 50-day moving average, and while it did succeed in breaking through and holding above that line for about a month, a combination of the company's underlying fundamentals, a vocal group of shorts and broad sector concerns eventually took over and pushed SCTY back below the 50-day.
Now the stock is basically right back where it was in the beginning of April. So does that mean it's an opportunity again?
SolarCity is the largest solar provider in the United States, creating affordable clean energy that's made available to all sorts of consumers, including residential homes, businesses and more.
But the solar industry is a dangerous game right now. In fact, SunEdison Inc ( SUNEQ ), which was once the fastest-growing renewable energy company in the United States, filed for bankruptcy on April 21 . Trading was halted on the shares at just 34 cents, a sad sight considering SunEdison had at one point traded above $90.
But SunEdison isn't the only rough patch in solar energy. SolarCity's latest earnings report also wasn't very promising . The company released first-quarter results on May 9, losing an adjusted $2.56 a share, while analysts had expected a loss of $2.32 a share. However, revenue grew 82% to $123 million, which beat estimates for $110 million. For the second quarter, though, the company lowered its revenue guidance to $135 to $143 million, while the Street expected $151 million.
Click to Enlarge But what sent the stock tanking as much as 27% the following morning was management once again slashing its installation estimates. SCTY now expects to install 1 to 1.1 total gigawatts this year , down from previous forecast of 1.25 GW. This is the third time in seven months that the company has lowered estimates.
The good news is that SCTY shares appear to have found buyers and formed a double-bottom pattern at the $16.50 area. On the other side of the argument, the volume during the two-week rally has not been overly impressive. If I had to make a guess, I would bet the stock will fail at the 50-day moving average and continue the current downtrend.
For now, I maintain my position that the risks within the solar industry simply outweigh the potential rewards. While SCTY may prove worth a short-term trade or two, I would not put money into this company for the long term just yet.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks, the ETF Bulletin and Co-Editor of Breakout Stocks.
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