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Molycorp (MCP) In A Perilous Reversal

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Molycorp ( MCP) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Molycorp as such a stock due to the following factors:

  • MCP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $36.4 million.
  • MCP has traded 24.4 million shares today.
  • MCP is down 3.3% today.
  • MCP was up 15% yesterday.

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More details on MCP:

Molycorp, Inc. produces and sells rare earth and rare metal materials in the United States and internationally. Currently there is 1 analyst that rates Molycorp a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Molycorp has been 7.0 million shares per day over the past 30 days. Molycorp has a market cap of $1.2 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 3.12 and a short float of 46% with 8.66 days to cover. Shares are down 49% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Molycorp as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 270.2% when compared to the same quarter one year ago, falling from -$18.89 million to -$69.93 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MOLYCORP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$15.97 million or 192.89% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio of 1.06 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, MCP's quick ratio is somewhat strong at 1.30, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.06%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 127.77% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

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