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Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
With recent legislation like the California 2020 Solar Mandate and over $100 million in written reservations from roofing companies, we can expect the company to win more orders and the upcoming results to duly reflect that. Management continues to believe that Real Goods Solar is in a unique position to be the first real mover in the solar shingle marketplace. This, is turn, might prove detrimental to Real Goods Solar’s bottom line in the soon-to-be-reported quarter. However, headwinds like fluctuating oil prices and foreign currency rates with China may push up costs for the company. We may expect the upcoming quarterly results to reflect the same. Undoubtedly, receipt of the product certificate will further boost Real Goods Solar’s revenue growth in the fourth quarter. As of Sep 30, 2018, POWERHOUSE written reservations exceeded $127 million in potential annual revenues. I suggest you take a look into a future growth analysis to examine what the market expects for the company moving forward.In November 2018, Real Goods Solar received the product certification for its POWERHOUS 3.0 solar shingle system, which has provided manufacturing right to the company in the United States. As shareholders, you should try and determine whether this strategy is justified for RGSE, and whether the company needs financial flexibility at this point in time. Next Steps:Īre you a shareholder? As RGSE’s revenues are not growing at a fast enough pace, not having any low-cost debt funding may not be optimal for the business. Our analysis shows that RGSE does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise. We test for RGSE’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, RGSE could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. Does RGSE’s liquid assets cover its short-term commitments? While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost. RGSE delivered a negative revenue growth of -52.61%. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. Either RGSE does not have access to cheap capital, or it may believe this trade-off is not worth it. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Check out our latest analysis for Real Goods Solar Is RGSE growing fast enough to value financial flexibility over lower cost of capital?ĭebt funding can be cheaper than issuing new equity due to lower interest cost on debt. While zero-debt makes the due diligence for potential investors less nerve-racking, it poses a new question: how should they assess the financial strength of such companies? I recommend you look at the following hurdles to assess RGSE’s financial health. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt allows substantial financial flexibility, especially for small-cap companies like Real Goods Solar Inc ( NASDAQ:RGSE), as the company does not have to adhere to strict debt covenants.
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