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With many analysts bullish on SolarCity Corp. (Nasdaq: SCTY) stock right now, should investors buy it?
It’s clear why investors are tempted by SCTY shares…
SCTY has a pretty good track record. Since its December 2012 IPO, SolarCity stock is up 423%.
Visionary Elon Musk of Tesla Motors Inc. (Nasdaq: TSLA) is chairman of the board.
And solar power installations is a huge growth industry. According to the Solar Energy Industries Association, photovoltaic (PV) installations in the United States have soared from 852 megawatts in 2010 to 6,201 megawatts in 2014. That’s a sevenfold increase in just four years.
SolarCity has been a key player in that growth. With more than one-third of the market, the San Mateo, Calif.-based company is the biggest residential solar installer in the United States.
Over the past two years, quarterly revenue grew from $28.2 million (in Q1 of 2013) to $67.48 million (in Q1 of 2015). The company’s guidance for the current quarter forecasts a 42% to 50% jump in revenue to $86 million to $92 million.
What’s more, the market for solar installations has barely been tapped. SolarCity estimates that just 1.1% of homes that could install solar in the U.S. have done so.
That’s why so many analysts like SCTY stock…
Wall Street’s High Hopes for SCTY Stock
After SolarCity reported its Q1 earnings earlier this month, Credit Suisse Group (NYSE: CS) raised its price target on SCTY stock from $97 to $99. SCTY stock closed Wednesday (yesterday) at $61.27, so that target represents a 61.5% gain.
Other analysts are nearly as optimistic in their price targets on SCTY stock. Morgan Stanley (NYSE: MS) has a target of $92 on SCTY shares. Merrill Lynch has forecast a SCTY stock price of $95.
But what these analysts are missing is SolarCity stock carries some very serious risks…
Plenty of investors recognize those risks – the short interest in SCTY is a lofty 34% of the float.
Money Morning Capital Wave Strategist Shah Gilani understands why so many investors are betting against SCTY stock – and he agrees with them. Here’s why he’s not buying SCTY stock now…