Has Vivint Solar Stock Peaked At $15?

After a staggering 320% rise since the March low of this year, at the current price of around $15 per share we believe Vivint Solar stock (NYSE: VSLR) has reached its near term potential. Vivint Solar, a leading residential solar panel and module manufacturer, has seen its stock rally from $3 to $15 off its recent bottom compared to the S&P which moved 40%. On the way down, VSLR stock had taken a beating of around 75% going from $13 to $3, a rate significantly higher than the S&P 500, which fell by about 34%. Further, the stock is up a gigantic 263% from its early 2018 levels, two years ago.

VSLR stock has recovered to a level slightly higher than it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. This seems to make it fully valued as, in reality, demand and revenues will likely be lower than last year.

VSLR stock rose over the last 2 years, helped by a 27% jump in revenue, which despite a 9% increase in outstanding share count, still translated into a 17% rise in revenue per share.

While the company has seen revenue rise 27% over recent years, its P/S multiple rose from 1.6x in 2017 to 2.6x in 2019. Further, this year the P/S multiple has rallied to 5x. We believe the stock is unlikely to see significant upside following the recent rally, owing to the potential weakness from a recession driven by the Covid outbreak. Our interactive dashboard What Factors Drove 262% Change in Vivint Solar Inc. Stock between 2017 and now? has the underlying numbers.

Vivint Solar’s P/S multiple rose from 1.6x in 2017 to 2.5x in 2019. In 2020, the P/S multiple has risen to 5x. Vivint Solar’s Q1 2020 revenues came in at $91 million, a strong 30% jump from $69 million in the same quarter last year. This strong rise in revenues led to a jump in investor expectations, with the P/S multiple rising from 2.5x at the end of 2019 to over 5x now. However, there is a potential downside when we consider the current scenario, and how it could impact the company’s business.

So what’s the likely trigger and timing for this downside?

The global spread of Coronavirus has meant there is expected to be a drop in consumer spending, and despite the growing need of switching to cleaner sources of energy, solar installations are just not a priority for people during this pandemic. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Vivint Solar’s Q2 results in August will confirm the hit to its revenue. It is also likely to accompany a lower Q3 and FY’20 guidance.

If there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/S decline from the current level of 5x to around 4x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $11.

While VSLR stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here

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