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Lennar Corporation (LEN) 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 Lennar Corporation (LEN) 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 Lennar Corporation as such a stock due to the following factors:

  • LEN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $167.0 million.
  • LEN has traded 424,606 shares today.
  • LEN is trading at 1.83 times the normal volume for the stock at this time of day.
  • LEN 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 LEN with the Ticky from Trade-Ideas. See the FREE profile for LEN NOW at Trade-Ideas

More details on LEN:

Lennar Corporation, together with its subsidiaries, engages in homebuilding, financial services, and real estate businesses in the United States. The stock currently has a dividend yield of 0.5%. LEN has a PE ratio of 17.9. Currently there are 9 analysts that rate Lennar Corporation a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Lennar Corporation has been 5.1 million shares per day over the past 30 days. Lennar has a market cap of $5.7 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.67 and a short float of 25% with 7.08 days to cover. Shares are down 3.2% 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 Lennar Corporation as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and increase in net income. 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:

  • The revenue growth came in higher than the industry average of 29.2%. Since the same quarter one year prior, revenues rose by 45.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LENNAR CORP has improved earnings per share by 35.0% 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, LENNAR CORP increased its bottom line by earning $3.10 versus $0.48 in the prior year. For the next year, the market is expecting a contraction of 34.9% in earnings ($2.02 versus $3.10).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Household Durables industry average, but is greater than that of the S&P 500. The net income increased by 38.5% when compared to the same quarter one year prior, rising from $87.11 million to $120.66 million.
  • The gross profit margin for LENNAR CORP is rather low; currently it is at 24.30%. Regardless of LEN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, LEN's net profit margin of 7.53% compares favorably to the industry average.
  • LEN has underperformed the S&P 500 Index, declining 7.87% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

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