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Trade-Ideas: Ross Stores (ROST) 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 Ross Stores (ROST) 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 Ross Stores as such a stock due to the following factors:

  • ROST has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $133.3 million.
  • ROST has traded 655,787 shares today.
  • ROST is trading at 2.13 times the normal volume for the stock at this time of day.
  • ROST 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 ROST with the Ticky from Trade-Ideas. See the FREE profile for ROST NOW at Trade-Ideas

More details on ROST:

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions for the entire family. The stock currently has a dividend yield of 0.9%. ROST has a PE ratio of 18.2. Currently there are 10 analysts that rate Ross Stores a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Ross Stores has been 1.8 million shares per day over the past 30 days. Ross Stores has a market cap of $15.3 billion and is part of the services sector and retail industry. The stock has a beta of 0.49 and a short float of 2% with 1.99 days to cover. Shares are down 6% 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 Ross Stores as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share, revenue growth, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 25.20% which was in line with the performance of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ROST should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • ROSS STORES INC has improved earnings per share by 11.1% 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, ROSS STORES INC increased its bottom line by earning $3.53 versus $2.86 in the prior year. This year, the market expects an improvement in earnings ($3.88 versus $3.53).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 Specialty Retail industry and the overall market, ROSS STORES INC'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 $148.89 million or 4.77% when compared to the same quarter last year. In addition, ROSS STORES INC has also modestly surpassed the industry average cash flow growth rate of 3.70%.

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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