Comparative Financial Analysis between SolarCity Corporation and Ameresco, Inc.
The following memo will the serve the purpose of a comparative financial analysis ofSolarCity Corporation and Ameresco, Inc. while utilizing the metrics of revenue, net income, P/E ratio, stock price, and EPS. The basis of the comparison is not only to give an update on the financial performance of SolarCity Corporation but also to report on its competitive analysis in the industry.
SolarCity Corporation’s competitive strength is found in its business model. The company does not manufacture solar cells. Instead, SolarCity Corporation acquires solar cells from various suppliers, for instance, Yingli Solar. This reduces the risk associated with increasing silicon prices which is considered an important issue by firms in this industry. Overall, SolarCity Corporation’s business model delivers efficient energy with little costs, while earning revenue at significantly lower monthly rates. In fact, SolarCity’s residential market share rose 14.2% from 2012 to 2013(SolarCity, 2016).
SolarCity is at a good position in comparison to its competitors due to the fact that it does not manufacture solar cells. Instead, the company acquires them from outside suppliers, thus, hedging the risk of rising silicon cell prices. SolarCity makes its solar panel purchases from various sellers, for instance, Trina Solar, Yingli Energy, Suniva Inc. and BenQ Corporation to ensure competitive pricing. Given the strategic positioning, SolarCity’s risk premium has been decreasing even when the risk-free rate increases. This compression can be attributed to the long-term contracts of the company that established a strong going concern regarding cash flow payments. Moreover, SolarCity’s lease agreement has a price escalation clause that hedges against inflation.SolarCity’s cost of capital is also reduced by the high credit rating of the company’s customers. This means that the default rates for the enterprise are historically lower than both the auto loans and the residential mortgages (SolarCity, 2016).
Profit Margin Consistency
The profit margin for SolarCity has been on a consistent and increasing trend over the past three years. The profit margins for SolarCity in 2014, 2015 and 2016 have been -34.05%, -21.97% and -14.60% respectively. Given the increasing profit margin over the past three years, it is safe to assert that SolarCityis a reliable company, under good management and is a recognizedcompetitive enterprise. Notwithstanding, Ameresco, Inc. has also experienced increased and consistent profit margins over the last three years. The profit margins forAmeresco, Inc.in 2014, 2015 and 2016 have been 0.42%, 1.75%, and 0.47%. This can only mean that Ameresco, Inc. is also performing well in the industry; accredited to its proper management (NASDAQ, 2016).
Ameresco Solar’s Stock Prices declining at a lower Rate than SolarCity’s
Stock prices are of great importance as they help investors and prospective investors gauge the fair value of a company of their interest. As at May 2nd, Yahoo Finance recorded SolarCity’s share price at $30.05 as the opening market price. This indicates a sharp decline of close to 50% compared to a share price of 60.80 at a similar time in the previous financial year. Ameresco Solar’s share prices have also been declining, with the market price of its stock being $4.62 as at May 9th, a