February 01, 2013 at 06:31 AM EST
One Solar Company Off To A Good Start As Growth Prospects Brighten
One Solar Company Off To A Good Start As Growth Prospects Brighten

Solar City remains up over 50% barely a month after its IPO as rebounding housing sector presents unimaginable growth prospects for the emerging growth company

 

The U.S renewable energy sector is growing at a commendable rate. Going by the current growth rate, reports show that renewable energy will constitute 1/3 of new electricity added to the national grid within three years.

 

This snapshot explains the huge influx of new entrants into the industry. Not only do the growth prospects present a good incentive for companies but the whole idea of alternative energy sits well with ardent environmentalists.  Solar City (NASDAQ: SCTY), which recently went public through an IPO, is one of the latest names to send ripples down the renewable energy segment. The San Mateo-based company went public in mid-December with a starting price of around $8. At the time of writing, the stock was trading at around $16, representing a 100 percent gain on the share price barely a month after the IPO.

 

As far as growth goes, Solar City’s prospects couldn’t get any better. Its track record and business model lights up (pun intended) the future. Going by track record, the renewable energy company has, over the past three years, managed to grow its top line in a consistent and laudable fashion. In 2009, Solar City managed to raise revenue of $36.2 million. This figure edged up 64.3 percent to $59.5 million in 2011 and further increased to a triple digit $103.38 million in 2012. Considering broader market conditions in the alternative energy segment, it would be right to assume that the increased revenue was attributable to larger sales volumes and not price increments.

 

Targeting rebounding housing sector a good play

 

As we highlighted in our write up on Beazer Homes (NYSE: BZH) late last year, the housing sector is rebounding. In fact, we even had takeaways from Buffet’s interview with CNBC, where the renowned value investor noted that U.S home construction was trending upwards and that business tied to the construction sector would benefit.

 

Solar City seems to be capitalizing on this prevalent rebound. In the recent Las Vegas International Builders Show, Solar City unveiled a broader home program. This program will promote energy efficient homes by incorporating solar in new residential homes. Considering the upsurge in residential homes, Solar City’s program will be open to a large addressable market. Also, the high cost of building that accompanies any housing rebound will push many home construction companies toward cheaper options like solar energy. Putting this into perspective, Solar City will be able to ink more contracts and as such, will grow its revenue tremendously in the coming years. As of this writing, Solar City has forged partnerships with more than 30 homebuilders across the U.S, spanning an excess of 100 U.S communities. Some of the partnerships are with big wigs like Taylor Morrison and Shea Homes.

 

While the outlook is seemingly rosy, Solar City may face a few challenges; moreover with market penetration. Heavyweights like SolarWinds Inc. (NYSE: SWI) currently command a larger portion of the market and have stronger finances. Nonetheless, counsel from Tesla Motor’s Elon Musk, who is currently the chairman of the board at Solar City, may help. Elon Musk has vast experience in the alternative energy segment.

 

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