SolarCity (SCTY) Shows Signs Of Being Water-Logged And Getting Wetter

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 "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) 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 $189.8 million.
  • SCTY has traded 6.3 million shares today.
  • SCTY traded in a range 201.9% of the normal price range with a price range of $5.98.
  • SCTY traded below its daily resistance level (quality: 18 days, meaning that the stock is crossing a resistance level set by the last 18 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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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 5 analysts that rate SolarCity a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for SolarCity has been 4.1 million shares per day over the past 30 days. SolarCity has a market cap of $5.4 billion and is part of the technology sector and electronics industry. Shares are up 0.2% year-to-date as of the close of trading on Tuesday.

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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 unimpressive growth in net income, generally high debt management risk, weak operating cash flow and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has decreased by 20.8% when compared to the same quarter one year ago, dropping from -$39.46 million to -$47.65 million.
  • The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, SCTY maintains a poor quick ratio of 0.93, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to -$36.49 million or 149.27% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • SOLARCITY CORP reported flat earnings per share in the most recent quarter. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.80 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 417.5% in earnings (-$4.14 versus -$0.80).
  • In its most recent trading session, SCTY has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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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