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Perrigo Company (PRGO) Showing Signs Of Being Water-Logged And Getting Wetter

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 Perrigo Company ( PRGO) 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 Perrigo Company as such a stock due to the following factors:

  • PRGO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $397.1 million.
  • PRGO has traded 1.6 million shares today.
  • PRGO traded in a range 246.6% of the normal price range with a price range of $6.44.
  • PRGO traded below its daily resistance level (quality: 36 days, meaning that the stock is crossing a resistance level set by the last 36 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 PRGO:

Perrigo Company, through its subsidiaries, develops, manufactures, and distributes over-the-counter (OTC) and generic prescription (Rx) pharmaceuticals, nutritional products, and active pharmaceutical ingredients (API). The stock currently has a dividend yield of 0.2%. PRGO has a PE ratio of 32.3. Currently there are 10 analysts that rate Perrigo Company a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Perrigo Company has been 1.2 million shares per day over the past 30 days. Perrigo has a market cap of $14.5 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.14 and a short float of 16.5% with 5.77 days to cover. Shares are up 49.6% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Perrigo Company as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 2.3%. Since the same quarter one year prior, revenues rose by 21.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.80, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, PRGO has a quick ratio of 2.05, which demonstrates the ability of the company to cover short-term liquidity needs.
  • PERRIGO CO has improved earnings per share by 5.3% 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 two years. We feel that this trend should continue. During the past fiscal year, PERRIGO CO increased its bottom line by earning $4.67 versus $4.18 in the prior year. This year, the market expects an improvement in earnings ($6.61 versus $4.67).
  • Net operating cash flow has significantly increased by 120.04% to $98.70 million when compared to the same quarter last year. In addition, PERRIGO CO has also vastly surpassed the industry average cash flow growth rate of 30.09%.
  • 43.28% is the gross profit margin for PERRIGO CO 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 11.93% trails the industry average.

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