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Rentech (RTK) Is Today's Perilous Reversal 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 Rentech ( RTK) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Rentech as such a stock due to the following factors:

  • RTK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $13.6 million.
  • RTK has traded 2.0 million shares today.
  • RTK is down 3.1% today.
  • RTK was up 5.7% yesterday.

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More details on RTK:

Rentech, Inc., through its subsidiaries, manufactures and sells natural-gas based nitrogen fertilizer products in North and South America. Currently there are 3 analysts that rate Rentech a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Rentech has been 3.5 million shares per day over the past 30 days. Rentech has a market cap of $557.9 million and is part of the basic materials sector and chemicals industry. The stock has a beta of 3.53 and a short float of 8.1% with 3.35 days to cover. Shares are up 48% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Rentech as a hold. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins.

Highlights from the ratings report include:

  • Compared to its price level of one year ago, RTK is up 21.25% to its most recent closing price of 2.51. Looking ahead, our view is that this company's fundamentals should not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 42.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • RENTECH INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RENTECH INC turned its bottom line around by earning $0.03 versus -$0.06 in the prior year. This year, the market expects earnings to be in line with last year ($0.03 versus $0.03).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Chemicals industry. The net income has significantly decreased by 33.4% when compared to the same quarter one year ago, falling from -$5.24 million to -$6.99 million.
  • The debt-to-equity ratio is very high at 2.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, RTK maintains a poor quick ratio of 0.83, which illustrates the inability to avoid short-term cash problems.

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