Storm The Castle: 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 "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) 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 $215.7 million.
  • SCTY has traded 3.5 million shares today.
  • SCTY is trading at 1.80 times the normal volume for the stock at this time of day.
  • SCTY crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on SCTY:

SolarCity Corporation designs, installs, and sells or leases solar energy systems to residential and commercial customers, and government entities in the United States. Currently there are 6 analysts that rate SolarCity a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for SolarCity has been 5.2 million shares per day over the past 30 days. SolarCity has a market cap of $4.9 billion and is part of the technology sector and electronics industry. Shares are down 8.5% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates SolarCity as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, weak operating cash flow, generally high debt management risk and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The gross profit margin for SOLARCITY CORP is rather low; currently it is at 23.27%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -37.86% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$23.31 million or 361.94% 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 1.15 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, SCTY has managed to keep a strong quick ratio of 1.75, which demonstrates the ability to cover short-term cash needs.
  • SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.79 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 398.7% in earnings (-$3.94 versus -$0.79).
  • 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.

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