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Trade-Ideas: United Continental Holdings (UAL) 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 United Continental Holdings ( UAL) 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 United Continental Holdings as such a stock due to the following factors:

  • UAL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $196.9 million.
  • UAL has traded 699,480 shares today.
  • UAL is trading at 2.41 times the normal volume for the stock at this time of day.
  • UAL 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 UAL with the Ticky from Trade-Ideas. See the FREE profile for UAL NOW at Trade-Ideas

More details on UAL:

United Continental Holdings, Inc., through its subsidiaries, provides passenger and cargo air transportation services. The company operates in six continents from its hubs in Chicago, Cleveland, Denver, Guam, Houston, Los Angeles, New York/Newark, San Francisco, Tokyo, and Washington, D.C. Currently there are 3 analysts that rate United Continental Holdings a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for United Continental Holdings has been 4.0 million shares per day over the past 30 days. United Continental has a market cap of $10.6 billion and is part of the services sector and transportation industry. The stock has a beta of 0.37 and a short float of 5.4% with 2.30 days to cover. Shares are up 27.7% year to date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates United Continental Holdings as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:

  • Powered by its strong earnings growth of 35.95% and other important driving factors, this stock has surged by 55.60% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although UAL had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 0.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • UNITED CONTINENTAL HLDGS INC has improved earnings per share by 36.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, UNITED CONTINENTAL HLDGS INC swung to a loss, reporting -$2.32 versus $2.01 in the prior year. This year, the market expects an improvement in earnings ($3.19 versus -$2.32).
  • The debt-to-equity ratio is very high at 9.83 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, UAL has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • 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 Airlines industry and the overall market, UNITED CONTINENTAL HLDGS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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