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Trade-Ideas: KAR Auction Services (KAR) Is Today's "Water-Logged And Getting Wetter" 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 KAR Auction Services (KAR) 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 KAR Auction Services as such a stock due to the following factors:

  • KAR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $42.1 million.
  • KAR has traded 1.6 million shares today.
  • KAR traded in a range 216.1% of the normal price range with a price range of $0.94.
  • KAR traded below its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 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 KAR:

KAR Auction Services, Inc., together with its subsidiaries, provides vehicle auction services in North America. It operates in three segments: ADESA Auctions, IAA, and AFC. The stock currently has a dividend yield of 3.5%. KAR has a PE ratio of 37.6. Currently there are 8 analysts that rate KAR Auction Services a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for KAR Auction Services has been 1.7 million shares per day over the past 30 days. KAR Auction Services has a market cap of $4.0 billion and is part of the services sector and specialty retail industry. The stock has a beta of 1.83 and a short float of 2.3% with 0.78 days to cover. Shares are up 42.1% year-to-date as of the close of trading on Tuesday.

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 KAR Auction Services as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, good cash flow from operations, expanding profit margins and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 12.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • KAR AUCTION SERVICES INC has improved earnings per share by 14.3% 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, KAR AUCTION SERVICES INC increased its bottom line by earning $0.66 versus $0.52 in the prior year. This year, the market expects an improvement in earnings ($1.21 versus $0.66).
  • Net operating cash flow has increased to $95.40 million or 40.91% when compared to the same quarter last year. In addition, KAR AUCTION SERVICES INC has also vastly surpassed the industry average cash flow growth rate of -9.17%.
  • 44.50% is the gross profit margin for KAR AUCTION SERVICES INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 4.27% trails the industry average.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 53.97% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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