NEW YORK (TheStreet) -- Shares of Molycorp Inc. (MCP) are tanking by 26.67% to 41 cents in premarket trading on Monday morning, on expectations the rare earth oxide producer will announce later today that it will skip a $32.5 million loan payment, which could result in a bankruptcy filing before the end of the month, The Wall Street Journal reports.
Molycorp is working to survive one of the largest commodity bubbles in economic history, The Journal noted, adding that rate earth prices have been on a long downslide resulting in Molycorp becoming unprofitable and indebted.
The company has recently suffered from three straight quarters of losses and has $1.7 billion in debt.
Separately, TheStreet Ratings team rates MOLYCORP INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate MOLYCORP INC (MCP) a SELL. This is driven by a few notable 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 disappointing return on equity, 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:
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MOLYCORP INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$72.89 million or 59.18% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The gross profit margin for MOLYCORP INC is currently extremely low, coming in at 0.52%. 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 -96.15% significantly underperformed when compared to the industry average.
- The debt-to-equity ratio is very high at 2.26 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, MCP has managed to keep a strong quick ratio of 1.60, which demonstrates the ability to cover short-term cash needs.
- Looking at the price performance of MCP's shares over the past 12 months, there is not much good news to report: the stock is down 80.42%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier 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