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Eyes On Peabody Energy (BTU): Highlighted Storm The Castle 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 Peabody Energy ( BTU) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Peabody Energy as such a stock due to the following factors:

  • BTU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $141.2 million.
  • BTU has traded 8.5 million shares today.
  • BTU is trading at 3.25 times the normal volume for the stock at this time of day.
  • BTU crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in BTU with the Ticky from Trade-Ideas. See the FREE profile for BTU NOW at Trade-Ideas

More details on BTU:

Peabody Energy Corporation is engaged in the mining of coal. The company operates through Western U.S. Mining, Midwestern U.S. Mining, Australian Mining, Trading and Brokerage, and Corporate and Other segments. The stock currently has a dividend yield of 2.1%. Currently there are 11 analysts that rate Peabody Energy a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Peabody Energy has been 7.2 million shares per day over the past 30 days. Peabody Energy has a market cap of $4.7 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 2.07 and a short float of 9% with 2.72 days to cover. Shares are down 10.8% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Peabody Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • Currently the debt-to-equity ratio of 1.54 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, BTU has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • The gross profit margin for PEABODY ENERGY CORP is rather low; currently it is at 15.23%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -32.45% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $178.40 million or 20.21% when compared to the same quarter last year. Despite a decrease in cash flow of 20.21%, PEABODY ENERGY CORP is in line with the industry average cash flow growth rate of -22.97%.
  • BTU has underperformed the S&P 500 Index, declining 13.05% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, PEABODY ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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