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Trade-Ideas: Diamond Offshore Drilling (DO) 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 Diamond Offshore Drilling ( DO) 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 Diamond Offshore Drilling as such a stock due to the following factors:

  • DO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $90.8 million.
  • DO has traded 1.3 million shares today.
  • DO traded in a range 229.2% of the normal price range with a price range of $2.41.
  • DO traded below its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 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 DO:

Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry world wide. The company provides drilling services in ultra-deepwater, deepwater, and mid-water; and non-floater or jack-up markets. The stock currently has a dividend yield of 1.1%. DO has a PE ratio of 11.3. Currently there are 2 analysts that rate Diamond Offshore Drilling a buy, 7 analysts rate it a sell, and 9 rate it a hold.

The average volume for Diamond Offshore Drilling has been 2.2 million shares per day over the past 30 days. has a market cap of $6.7 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.46 and a short float of 23.8% with 8.62 days to cover. Shares are down 12.6% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Diamond Offshore Drilling as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:

  • Despite currently having a low debt-to-equity ratio of 0.54, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.44 is very high and demonstrates very strong liquidity.
  • 39.15% is the gross profit margin for DIAMOND OFFSHRE DRILLING INC which we consider to be strong. Regardless of DO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DO's net profit margin of 13.20% compares favorably to the industry average.
  • DO, with its decline in revenue, underperformed when compared the industry average of 8.2%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Energy Equipment & Services industry and the overall market, DIAMOND OFFSHRE DRILLING INC's return on equity is below that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $208.09 million or 31.02% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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