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Stock To Watch: Walter Energy (WLT) In Perilous Reversal

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 Walter Energy ( WLT) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Walter Energy as such a stock due to the following factors:

  • WLT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $22.9 million.
  • WLT has traded 1.3 million shares today.
  • WLT is down 3.7% today.
  • WLT was up 8.9% yesterday.

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More details on WLT:

Walter Energy, Inc. produces and exports metallurgical coal for the steel industry. The company operates through U.S. Operations, and Canadian and U.K. Operations segments. The stock currently has a dividend yield of 0.7%. Currently there are 2 analysts that rate Walter Energy a buy, 3 analysts rate it a sell, and 7 rate it a hold.

The average volume for Walter Energy has been 4.4 million shares per day over the past 30 days. Walter Energy has a market cap of $385.1 million and is part of the basic materials sector and metals & mining industry. The stock has a beta of 2.43 and a short float of 58.6% with 10.76 days to cover. Shares are down 64.8% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

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

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 338.9% when compared to the same quarter one year ago, falling from -$34.49 million to -$151.39 million.
  • The gross profit margin for WALTER ENERGY INC is currently extremely low, coming in at 5.48%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -40.01% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$74.40 million or 1481.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio is very high at 5.20 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, WLT's quick ratio is somewhat strong at 1.10, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 48.62%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 323.63% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

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