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Coca-Cola (KO) Showing Signs Of Being A Roof Leaker

Stocks in this article: KO

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 Coca-Cola ( KO) 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 Coca-Cola as such a stock due to the following factors:

  • KO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $545.6 million.
  • KO has traded 20,665 shares today.
  • KO is trading at 3.17 times the normal volume for the stock at this time of day.
  • KO 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.

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More details on KO:

The Coca-Cola Company, a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. The stock currently has a dividend yield of 2.8%. KO has a PE ratio of 21.0. Currently there are 8 analysts that rate Coca-Cola a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for Coca-Cola has been 15.0 million shares per day over the past 30 days. Coca-Cola has a market cap of $178.7 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 0.26 and a short float of 1% with 2.97 days to cover. Shares are up 11.4% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Coca-Cola as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity, good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • COCA-COLA CO has improved earnings per share by 8.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, COCA-COLA CO increased its bottom line by earning $1.96 versus $1.85 in the prior year. This year, the market expects an improvement in earnings ($2.09 versus $1.96).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Beverages industry and the overall market, COCA-COLA CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has slightly increased to $3,756.00 million or 2.56% when compared to the same quarter last year. In addition, COCA-COLA CO has also modestly surpassed the industry average cash flow growth rate of -5.20%.
  • The gross profit margin for COCA-COLA CO is rather high; currently it is at 64.29%. Regardless of KO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KO's net profit margin of 20.34% compares favorably to the industry average.
  • KO, with its decline in revenue, slightly underperformed the industry average of 2.5%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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