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Roof Leaker To Watch: Mohawk Industries (MHK)

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 Mohawk Industries ( MHK) 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 Mohawk Industries as such a stock due to the following factors:

  • MHK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $96.2 million.
  • MHK has traded 149,659 shares today.
  • MHK is trading at 2.82 times the normal volume for the stock at this time of day.
  • MHK 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 MHK with the Ticky from Trade-Ideas. See the FREE profile for MHK NOW at Trade-Ideas

More details on MHK:

Mohawk Industries, Inc., together with its subsidiaries, designs, manufactures, sources, distributes, and markets floor covering products for residential and commercial applications in both remodeling and new construction worldwide. MHK has a PE ratio of 28.1. Currently there are 6 analysts that rate Mohawk Industries a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Mohawk Industries has been 1.0 million shares per day over the past 30 days. Mohawk has a market cap of $9.9 billion and is part of the consumer goods sector and consumer durables industry. The stock has a beta of 1.28 and a short float of 2.4% with 2.07 days to cover. Shares are down 7.6% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Mohawk Industries as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • MHK's revenue growth has slightly outpaced the industry average of 27.9%. Since the same quarter one year prior, revenues rose by 34.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MOHAWK INDUSTRIES INC reported significant earnings per share improvement 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, MOHAWK INDUSTRIES INC increased its bottom line by earning $5.05 versus $3.60 in the prior year. This year, the market expects an improvement in earnings ($8.25 versus $5.05).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Household Durables industry average. The net income increased by 42.6% when compared to the same quarter one year prior, rising from $66.39 million to $94.65 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.

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