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Trade-Ideas: Peabody Energy Corporation (BTU) Is Today's "Storm The Castle" 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 Peabody Energy Corporation ( BTU) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Peabody Energy Corporation as such a stock due to the following factors:

  • BTU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $151.7 million.
  • BTU has traded 3.5 million shares today.
  • BTU is trading at 2.21 times the normal volume for the stock at this time of day.
  • BTU crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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

More details on BTU:

Peabody Energy Corporation engages in the mining of coal. The company operates through Western U.S. Mining, Midwestern U.S. Mining, Australian Mining, Trading and Brokerage, and Corporate and Other segments. The stock currently has a dividend yield of 1.9%. Currently there are 11 analysts that rate Peabody Energy Corporation a buy, 2 analysts rate it a sell, and 7 rate it a hold.

The average volume for Peabody Energy Corporation has been 6.4 million shares per day over the past 30 days. Peabody Energy has a market cap of $4.9 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 1.96 and a short float of 6.9% with 2.40 days to cover. Shares are down 32.4% year to date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Peabody Energy Corporation as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 160.8% when compared to the same quarter one year ago, falling from $42.90 million to -$26.10 million.
  • The debt-to-equity ratio of 1.32 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, BTU maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, PEABODY ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PEABODY ENERGY CORP is rather low; currently it is at 20.33%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.45% trails that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 86.95% compared to 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.

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