Why TheStreet Ratings Team Rates Molycorp (MCP) Stock a 'Sell'

NEW YORK (TheStreet) -- TheStreet Ratings team rates Molycorp Inc (MCP)  stock a 'sell' with a ratings score of D.

Shares of the rare earth and metal company were falling -7.14% to $1.75 in late afternoon trading. 

About 7.56 million shares of Molycorp were traded by 3:47 p.m., compared to the average trading volume of 5.58 million shares a day.

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TheStreet Ratings Team has this to say about their recommendation:

"We rate MOLYCORP INC (MCP) a SELL. This is driven by multiple 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 unimpressive growth in net income, weak operating cash flow, poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Metals & Mining industry average. The net income has decreased by 17.9% when compared to the same quarter one year ago, dropping from -$71.18 million to -$83.90 million.
  • Net operating cash flow has significantly decreased to -$72.46 million or 93.68% 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 gross profit margin for MOLYCORP INC is currently extremely low, coming in at 3.00%. Regardless of MCP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MCP's net profit margin of -71.76% significantly underperformed when compared to the industry average.
  • The debt-to-equity ratio of 1.17 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, MCP has managed to keep a strong quick ratio of 1.58, which demonstrates the ability to cover short-term cash needs.
  • MCP'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 68.09%, 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.
  • You can view the full analysis from the report here: MCP Ratings Report

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