Why SolarCity (SCTY) Stock Is Up Today

NEW YORK (TheStreet) -- SolarCity (SCTY) stock is gaining Tuesday after signing an agreement to acquire solar tech company Silevo. By midmorning, shares had spiked 9.4% to $60.05.

"Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power. Although no other acquisitions are currently being contemplated, SolarCity may acquire additional photovoltaics companies as needed to ensure clear technology leadership and we plan to grow internal engineering significantly," SolarCity chairman Elon Musk, CTO Peter Rive and CEO Lyndon Rive explained in a company blog post. 

The company also said it is currently in discussions with New York State to build an initial manufacturing plant with targeted capacity greater than 1 GW within the next two years. It will be one of the single largest solar panel production plants in the world. 

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Separately, 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 several weaknesses, 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 poor profit margins, weak operating cash flow, generally high debt management risk and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • 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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