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American Electric Power (AEP) 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 American Electric Power ( AEP) 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 American Electric Power as such a stock due to the following factors:

  • AEP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $236.6 million.
  • AEP has traded 3.2 million shares today.
  • AEP is trading at 11.29 times the normal volume for the stock at this time of day.
  • AEP 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 AEP with the Ticky from Trade-Ideas. See the FREE profile for AEP NOW at Trade-Ideas

More details on AEP:

American Electric Power Company, Inc., a public utility holding company, engages in the generation, transmission, and distribution of electric power to retail customers. The company generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric energy. The stock currently has a dividend yield of 4.3%. AEP has a PE ratio of 19.6. Currently there are 8 analysts that rate American Electric Power a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for American Electric Power has been 3.4 million shares per day over the past 30 days. The stock has a beta of 0.25 and a short float of 1% with 0.95 days to cover. Shares are up 9.1% year to date as of the close of trading on Wednesday.

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 American Electric Power as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, increase in stock price during the past year and attractive valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • AEP's revenue growth trails the industry average of 12.6%. Since the same quarter one year prior, revenues slightly increased by 0.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 35.11% is the gross profit margin for AMERICAN ELECTRIC POWER CO which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.36% is above that of the industry average.
  • Net operating cash flow has increased to $1,524.00 million or 27.10% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.40%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • AMERICAN ELECTRIC POWER CO's earnings per share declined by 11.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AMERICAN ELECTRIC POWER CO reported lower earnings of $2.60 versus $3.24 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $2.60).

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