NEW YORK (TheStreet) -- SolarCity (SCTY) shares are up 3.56% to $45.43 in early market trading on Tuesday after the billionaire chairman of the company Elon Musk increased his stake in the solar energy provider.
Musk, CEO of electric vehicle maker Tesla (TSLA) - Get Tesla Inc Report, upped his stake in the company by 123,510 shares, or 0.6%, at a purchase price of $40.4855 each, according to a regulatory filing yesterday.
The company's stock dropped 13% during Friday's session after hedge fund manager Jim Chanos said that he's short on the company, according to Bloomberg.
The company's stock reached its lowest point since November 2013 on Friday, but rallied 7% yesterday to close at $43.87.
"Solar is a transformational industry, and it's going to be a great thing and part of it is because cost for everything keep coming down," Chanos said while explaining his investment bet that the company's stock would fall. "That's a problem if you are SolarCity, and your customers are paying you this above market prices and you hope to sell more systems."
SolarCity CEO Lyndon Rive rebutted Chanos assertion on CNBC on Friday saying, "I just don't think he got his facts straight. We sell them energy at a lower rate than they can buy from the utility today, so the likelihood they are going to default on us is extremely low."
TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 2.73 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, SCTY has a quick ratio of 0.63, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Net operating cash flow has significantly decreased to -$140.63 million or 285.44% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- SCTY's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 33.35%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electrical Equipment industry and the overall market, SOLARCITY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, SOLARCITY CORP continued to lose money by earning -$0.63 versus -$0.81 in the prior year. For the next year, the market is expecting a contraction of 1046.0% in earnings (-$7.22 versus -$0.63).
- You can view the full analysis from the report here: SCTY Ratings Report