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Water-Logged And Getting Wetter: TransDigm Group (TDG)

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 TransDigm Group ( TDG) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified TransDigm Group as such a stock due to the following factors:

  • TDG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $46.6 million.
  • TDG has traded 318,292 shares today.
  • TDG traded in a range 215.3% of the normal price range with a price range of $4.77.
  • TDG traded below its daily resistance level (quality: 21 days, meaning that the stock is crossing a resistance level set by the last 21 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on TDG:

TransDigm Group Incorporated, through its subsidiaries, designs, produces, and supplies engineered aerospace components for commercial and military aircraft customers in the United States. TDG has a PE ratio of 34.6. Currently there are 7 analysts that rate TransDigm Group a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for TransDigm Group has been 419,600 shares per day over the past 30 days. TransDigm Group has a market cap of $7.7 billion and is part of the industrial goods sector and aerospace/defense industry. The stock has a beta of 0.82 and a short float of 3.1% with 4.60 days to cover. Shares are up 8% year to date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates TransDigm Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 5.8%. 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.
  • TRANSDIGM GROUP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, TRANSDIGM GROUP INC increased its bottom line by earning $5.97 versus $2.80 in the prior year. This year, the market expects an improvement in earnings ($6.86 versus $5.97).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, TRANSDIGM GROUP INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • The gross profit margin for TRANSDIGM GROUP INC is rather high; currently it is at 56.79%. Regardless of TDG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TDG's net profit margin of 15.68% compares favorably to the industry average.
  • 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. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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