Perilous Reversal Watch: SolarCity (SCTY)

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

  • SCTY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $282.7 million.
  • SCTY has traded 889,042 shares today.
  • SCTY is down 3.4% today.
  • SCTY was up 8% yesterday.

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More details on SCTY:

2/17/2011 announced acq of groSolar designs, distributes, and installs solar electric and solar hot water systems for residential and commercial buildings. It also offers solar hot air, solar pool heating, photovoltaic systems, racking and mounting systems, and inverters. Currently there are 3 analysts that rate SolarCity a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for SolarCity has been 4.2 million shares per day over the past 30 days. SolarCity has a market cap of $6.2 billion and is part of the technology sector and electronics industry. Shares are up 40.7% year-to-date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates SolarCity as a sell. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures.

Highlights from the ratings report include:
  • The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SCTY has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. For the next year, the market is expecting a contraction of 217.0% in earnings (-$1.78 versus -$0.56).
  • 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.
  • The gross profit margin for SOLARCITY CORP is rather high; currently it is at 65.47%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.90% trails the industry average.
  • Net operating cash flow has improved to $100.01 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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