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Perilous Reversal Watch: Arch Coal (ACI)

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 Arch Coal ( ACI) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Arch Coal as such a stock due to the following factors:

  • ACI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $37.8 million.
  • ACI has traded 181,191 shares today.
  • ACI is down 3.2% today.
  • ACI was up 5.1% yesterday.

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More details on ACI:

Arch Coal, Inc. engages in the production and sale of steam and metallurgical coal from surface and underground mines located in the United States. The stock currently has a dividend yield of 2.8%. Currently there are 6 analysts that rate Arch Coal a buy, 4 analysts rate it a sell, and 8 rate it a hold.

The average volume for Arch Coal has been 8.9 million shares per day over the past 30 days. Arch Coal has a market cap of $881.0 million and is part of the basic materials sector and metals & mining industry. The stock has a beta of 2.06 and a short float of 18.6% with 4.35 days to cover. Shares are down 40.4% year to date as of the close of trading on Friday.

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 Arch Coal as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally high debt management risk.

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 380.6% when compared to the same quarter one year ago, falling from $45.75 million to -$128.36 million.
  • 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, ARCH COAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 12.96%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -16.22% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $134.55 million or 48.46% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Currently the debt-to-equity ratio of 1.97 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 2.75, which shows the ability to cover short-term cash needs.

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