Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
week solar panel installer SolarCity
made its first earnings announcement following its initial public offering in
December 2012.The event was much
anticipated even if only to get a glimpse of the company’s most notable (or
it’s that notorious?) investor Elan Musk.
Musk was mostly recently in the public eye because of a spat with a New York
Times reporter over one of Musk’s other major investments, Tesla Motors (TSLA:Nasdaq).The
reporter was entrusted to road test one of Tesla’s electric sports cars and
ended up writing a scathing article about the failure of the car to hold up to performance
promises.It turned out to be one of those “they said
this and he said that” situations with Musk and reporter talking past each
other in the social media.In the end Musk
prevailed after Washington Post and CNN reporters figured out their fellow
journalist at the New York Times was probably just not car savvy enough to make
a road trip in any car, let alone one that requires consistent driving skills
as well as a strategy for charging batteries.
came out of the road test brouhaha a bit diluted in my view.So it seems SolarCity is in the same shape as
its largest shareholder.
reported $14.0 million in total revenue in the December 2012 quarter, twice the
top-line in the prior-year quarter.That
sort of top-line growth was expected.Unfortunately, SolarCity reported a much deeper loss than expected-$0.54 per share compared to the consensus estimate of $0.44.For all the billions invested by
professionals there, a dime is big on Wall Street. The stock price immediately gapped down by
8.2% as trading opened the morning after SolarCity’s earnings release and
my interest in SolarCity is after the fact.I am always amazed at the hair trigger response of investors to
quarterly earnings surprise, especially when an unseasoned security like SCTY
is the target.Certainly, the
“shortfall” or “upside” is an instructive guide for investment decision makers,
but only when the benchmark consensus is reliable.
fact, there is quite a bit of dissent in the SolarCity earnings consensus.There are seven contributors to the Thomson
Reuter’s consensus estimate for the March 2013 quarter.The mean estimate is a negative $0.29 per
share on $29.2 million in revenue.However, the range of estimates is so wide you have to wonder if these
seven analysts are looking at the same company.The lowest earnings estimate is a loss of $0.48 per share and the
highest is a loss of $0.04 per share.That is a pretty wide range in viewpoint.Some of this can be explained by disagreement
on the amount of sales the company will record in the quarter.The range of sales estimates is from a low of
$21.3 million to $33.8 million.Still,
it appears there is some difference of opinion on costs and expenses as well
that is driving loss estimates. The
same sort of disagreement is in evidence for year 2013 and year 2014 estimates.
a group of analysts will have differences in expectations for any given
company. However, just three months
after the SolarCity IPO, you would not expect to see such wide disparity in
estimates.After all, the roadshow
exercise should have laid SolarCity open to a fairly thorough vetting.What is more all analysts would have started
from largely the same vantage point -the
here we are today with SCTY trading 15% off its pre-earnings release price at
$19.27 per share-all because the company failed to report
earnings in alignment with what is clearly a jumbled set of expectations.Should a company be held accountable when
investors cannot agree on a benchmark?
the more important question is why so many smart people cannot pin down sales
and profits in the first place.Could it
be that SolarCity’s communication with investors is…well…lacking? Indeed, there
may be a bit of pattern here in Mr. Musk’s investment portfolio.Both Tesla and SolarCity appear to have trouble
getting their message across to the public about performance expectations.
for those of us who are late to the party, disconnection of this sort presents
a perfect buying opportunity.Next post,
we will look at all the reasons a long position in SCTY makes sense and a few
more reasons to be cautious.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies