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SolarCity Corp (SCTY), Real Goods Solar, Inc. (RSOL): Solar Financing Gets Crowded

SolarCity Corp (NASDAQ:SCTY) has been a stock market darling since its IPO late last year, and early investors have nearly tripled their money.

They have been a darling because they have been on the right side of the solar transaction. By selling panels, creating demand for them, companies like SolarCity Corp (NASDAQ:SCTY) get the wide margins available before the costs of solar power fall below those of other grid energy.

SolarCity Corp (NASDAQ:SCTY)

Still, as much as I’m bullish on solar stocks, now may be the time for investors here to take their profits in SolarCity Corp (NASDAQ:SCTY) and look elsewhere for a while. Here’s why.

What SolarCity does

First, let’s talk about what SolarCity does. It sells and finances solar panel installations, mainly for residential customers. There are several other businesses in this space, but SolarCity Corp (NASDAQ:SCTY) has a certain Musk about it, as in chairman of the board Elon Musk, whose success with Tesla Motors Inc (NASDAQ:TSLA), SpaceX and PayPal has many comparing him with Richard Branson and other great entrepreneurs of the past.

Beyond the fact that Musk may be at the peak of his own hype cycle, a look at SolarCity Corp (NASDAQ:SCTY)’s books should show you they’re over-rated. The company is making sales at a $120 million/year rate, it has yet to make a profit, it’s hardly generating any cash flow, yet it’s worth $2.76 billion?

True, the balance sheet looks tasty, with debt-to-assets under 25% and the asset base having grown 50% in less than a year, to nearly $1.5 billion. But this has every appearance of a great opportunity that’s overpriced.

A crowding field

SolarCity Corp (NASDAQ:SCTY)’s business model requires no technical expertise to execute, simply salesmanship and financing. The company’s success has rivals plowing capital into the space like there’s no tomorrow.

The capital is coming from two directions, from power companies and from banks.

Duke Energy Corp (NYSE:DUK), for instance, fresh off beating back a Republican attempt to gut North Carolina’s renewable energy targets, is putting money into Clean Power Finance , which has raised $500 million to finance projects for SolarCity rivals like Real Goods Solar, Inc. (NASDAQ:RSOL).

Real Goods Solar, Inc. (NASDAQ:RSOL), which first went public during the first flash of solar power hype in the late 2000s, has a market cap of just $64 million, and was beaten down by heavy losses in the middle of last year. But it’s fully capable of doing just as many deals as SolarCity, and while the balance sheet is presently a mess, it’s nothing a little capital won’t cure.

Now may not be the time to walk in – deal makers want to sweat out current shareholders before injecting new capital – but now that it’s clear that the business model works, this company is going to get another look at some point.