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SolarCity Stock Explosion Looks Like a Bridge Too Far

Jon C. Ogg

SolarCity Corp. (SCTY) saw its shares surge on Friday after the company offered guidance for 2013 and 2014. The move was so big that it was fighting for the pole position of the market's top performers. It is also a move that may simply be too exaggerated.

What is odd is that the company merely confirmed guidance for fiscal 2013, even if 2014 was very impressive for an outlook. SolarCity deployed 78 MW during the third quarter.

Cumulative energy contracts reached 72,506, and cumulative customers rose to 82,235. Its estimated nominal contracted payments remaining were $1.737 billion as of September 30, 2013.

SolarCity said, "The Company continues to expect to achieve 278 MW deployed for its current fiscal year 2013. For its fiscal year 2014, the Company expects to deploy between 475 MW and 525 MW." The translation is growth of 70% to 89% in 2014.

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What you have to ask yourself is whether or not a move of almost 22% to $46.71 is too much when the 52-week range is $9.20 to $52.77. Then keep in mind that the consensus analyst estimates for earnings per share are -$1.71 per share in 2013 and -$1.67 per share in 2014. How much of an increase does it take to actually become profitable?

Also, does it matter if Elon Musk is buying more shares in the upped stock offering? Shares were at $38.33 on Thursday before the news, and the consensus analyst price target was actually under that price at $37 on last look.

One more thing boosting this move is that the latest short interest just hit an all-time high. The mid-September short interest was more than 6.84 million shares, and that was up from the prior high of over 5.56 million jus two weeks earlier.

Trading volume was already more than 11 million shares shortly after the 12:00 PM mark when normal trading volume is closer to 2.6 million shares for a full trading day. This move is not just unusual. It is exaggerated by outside factors.

Trying to use logic for valuation and price moves is often painful during major bull markets. Then throw in the Elon Musk hype and you add the Tesla Motors Inc. (TSLA) mystique. This stock for SolarCity could keep going higher, but whether or not it should is a different matter entirely.

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