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Trade-Ideas: Wal-Mart Stores (WMT) Is Today's "Roof Leaker" Stock

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 Wal-Mart Stores ( WMT) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Wal-Mart Stores as such a stock due to the following factors:

  • WMT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $498.3 million.
  • WMT has traded 6.5 million shares today.
  • WMT is trading at 1.53 times the normal volume for the stock at this time of day.
  • WMT crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in WMT with the Ticky from Trade-Ideas. See the FREE profile for WMT NOW at Trade-Ideas

More details on WMT:

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company operates in three segments: Walmart U.S., Walmart International, and Sam's Club. The stock currently has a dividend yield of 2.6%. WMT has a PE ratio of 14.3. Currently there are 11 analysts that rate Wal-Mart Stores a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Wal-Mart Stores has been 6.5 million shares per day over the past 30 days. Wal-Mart Stores has a market cap of $241.1 billion and is part of the services sector and retail industry. The stock has a beta of 0.29 and a short float of 1.3% with 3.10 days to cover. Shares are up 7.3% year to date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Wal-Mart Stores as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, growth in earnings per share, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:

  • WMT's revenue growth has slightly outpaced the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 2.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • WAL-MART STORES INC has improved earnings per share by 5.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WAL-MART STORES INC increased its bottom line by earning $5.02 versus $4.55 in the prior year. This year, the market expects an improvement in earnings ($5.28 versus $5.02).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Food & Staples Retailing industry and the overall market, WAL-MART STORES INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has slightly increased to $6,357.00 million or 3.18% when compared to the same quarter last year. In addition, WAL-MART STORES INC has also modestly surpassed the industry average cash flow growth rate of -2.81%.
  • The net income growth from the same quarter one year ago has exceeded that of the Food & Staples Retailing industry average, but is less than that of the S&P 500. The net income increased by 1.3% when compared to the same quarter one year prior, going from $4,016.00 million to $4,069.00 million.

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