Why SolarCity (SCTY) Jumped on Wednesday

Tickers in this article: SCTY

NEW YORK (TheStreet) -- SolarCity  shares jumped on Wednesday following news it would launch a new investment platform and that it had acquired privately-held Common Assets.

Before the bell, the renewable energy systems provider announced it had purchased the financial technology developer, a firm which recently built SolarCity an investment platform for individual and small firm investors to provide financing for solar projects.

"Previously, only institutional investors could participate in the financing of most solar assets. With our investment platform, we're hoping to allow far more individuals and smaller organizations to participate in the transformation to a cleaner, more distributed infrastructure," said CEO Lyndon Rive in a statement.

Details of the acquisition were not disclosed.

By early afternoon, shares had gained 3.7% to $68.

TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate SOLARCITY CORP (SCTY) 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. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures."

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

  • The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SCTY has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. For the next year, the market is expecting a contraction of 216.1% in earnings (-$1.77 versus -$0.56).
  • 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.
  • The gross profit margin for SOLARCITY CORP is rather high; currently it is at 65.47%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.90% trails the industry average.
  • Net operating cash flow has improved to $100.01 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.