The solar industry at large
SunPower Corporation (NASDAQ:SPWR) is a solar panel manufacturer that also competes directly against SolarCity. The company manufactures the highest efficiency solar panels in the market with over 24 percent cell conversion efficiency. This high efficiency allows for SunPower Corporation (NASDAQ:SPWR) to dominate the consumer rooftop system market where space is limited. In under two years, the company has installed more than 100,000 residential solar systems globally and will benefit from the same trends as SolarCity going forward.
First Solar, Inc. (NASDAQ:FSLR) is a US solar panel manufacturer that focuses primarily on large scale utility projects. Unlike other solar panel manufacturers, First Solar, Inc. (NASDAQ:FSLR) uses cadmium telluride rather than polysilicon to produce its solar panels. As a consequence, its solar panels are not as efficient. First Solar, Inc. (NASDAQ:FSLR) has not moved into the rooftop installation space, but given its large resources, it easily could. It is one of the only companies in the solar industry that is currently profitable.
| P/E (ttm) | Forward P/E | 5-year PEG (expected) | Price to Sales (ttm) | Return on Equity (ttm) | Profit Margin | |
| SolarCity | N/A | N/A | -0.65 | 21.77 | N/A | N/A |
| First Solar | 9.97 | 11.47 | -1.03 | 1.19 | 8.91% | 10.50% |
| Sunpower | N/A | 17.97 | 0.71 | 1.05 | N/A | N/A |
| Advantage: | First Solar | First Solar | Sunpower | Sunpower | First Solar | First Solar |
In terms of traditional metrics, First Solar, Inc. (NASDAQ:FSLR) is the best company of the three. It has the best price to earnings ratio and largest profit margins. While not profitable on a trailing twelve month basis, SunPower Corporation (NASDAQ:SPWR) should be profitable next year and should see its earnings grow over time.
SolarCity has poor traditional valuation metrics because it is in growth mode. Analysts do not expect SolarCity to make a profit for this year or next year and instead focus more on comparables such as growth of nominal payments outstanding and number of rooftop customers. When viewed through growth lenses, SolarCity shines.
The bottom line
SolarCity has a bright future as solar energy achieves grid parity in more places. Solar energy has already achieved grid parity in many parts of the American Southwest, and Deutsche Bank predicts that the number of markets where solar is at equal or lower cost than traditional energy sources will double over the next five years. It is an enormous market, and it is only getting started. Investors should consider SolarCity for exposure in the growing solar installation sector.
The article SolarCity and Its Future Potential originally appeared on Fool.com and is written by Jay Yao.
Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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