Today's Water-Logged And Getting Wetter Stock: 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.

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 $93.7 million.
  • SCTY has traded 1.6 million shares today.
  • SCTY traded in a range 223.1% of the normal price range with a price range of $2.84.
  • SCTY traded below its daily resistance level (quality: 83 days, meaning that the stock is crossing a resistance level set by the last 83 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, manufactures, installs, maintains, monitors, leases, and sells solar energy systems to residential, commercial, government, and other customers in the United States. Currently there are 6 analysts that rate SolarCity a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for SolarCity has been 2.5 million shares per day over the past 30 days. SolarCity has a market cap of $5.5 billion and is part of the technology sector and electronics industry. The stock has a beta of 2.95 and a short float of 35.3% with 12.41 days to cover. Shares are up 4.5% year-to-date as of the close of trading on Friday.

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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 generally high debt management risk, disappointing return on equity, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 2.41 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SCTY maintains a poor quick ratio of 0.95, which illustrates the inability to avoid short-term cash problems.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. 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.
  • Net operating cash flow has significantly decreased to -$171.28 million or 634.86% 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 SOLARCITY CORP is currently lower than what is desirable, coming in at 32.25%. Regardless of SCTY's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SCTY's net profit margin of -31.89% significantly underperformed when compared to the industry average.
  • SCTY has underperformed the S&P 500 Index, declining 18.34% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

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