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Today's Roof Leaker Stock Is Denbury Resources (DNR)

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 Denbury Resources ( DNR) 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 Denbury Resources as such a stock due to the following factors:

  • DNR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $59.4 million.
  • DNR has traded 470,517 shares today.
  • DNR is trading at 2.08 times the normal volume for the stock at this time of day.
  • DNR 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 DNR with the Ticky from Trade-Ideas. See the FREE profile for DNR NOW at Trade-Ideas

More details on DNR:

Denbury Resources Inc. operates as an oil and natural gas company in the United States. The company primarily focuses on enhanced oil recovery utilizing carbon dioxide. The stock currently has a dividend yield of 1.5%. DNR has a PE ratio of 16.1. Currently there are 9 analysts that rate Denbury Resources a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Denbury Resources has been 3.5 million shares per day over the past 30 days. Denbury has a market cap of $5.9 billion and is part of the basic materials sector and energy industry. The stock has a beta of 2.46 and a short float of 7.6% with 6.58 days to cover. Shares are up 4.9% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Denbury Resources as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 9.4%. 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.
  • The gross profit margin for DENBURY RESOURCES INC is rather high; currently it is at 65.09%. Regardless of DNR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DNR's net profit margin of 9.18% compares favorably to the industry average.
  • DNR's debt-to-equity ratio of 0.69 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that DNR's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.58 is low and demonstrates weak liquidity.
  • In its most recent trading session, DNR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • DENBURY RESOURCES INC's earnings per share declined by 26.1% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, DENBURY RESOURCES INC reported lower earnings of $1.11 versus $1.35 in the prior year. For the next year, the market is expecting a contraction of 0.9% in earnings ($1.10 versus $1.11).

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