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Storm The Castle: Lennar (LEN)

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 Lennar ( LEN) 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 Lennar as such a stock due to the following factors:

  • LEN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $100.6 million.
  • LEN has traded 2.4 million shares today.
  • LEN is trading at 2.01 times the normal volume for the stock at this time of day.
  • LEN 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.

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More details on LEN:

Lennar Corporation, together with its subsidiaries, is engaged in homebuilding activities in the United States. The stock currently has a dividend yield of 0.4%. LEN has a PE ratio of 16.6. Currently there are 4 analysts that rate Lennar a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Lennar has been 2.9 million shares per day over the past 30 days. Lennar has a market cap of $6.4 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.55 and a short float of 15.3% with 10.02 days to cover. Shares are down 5.1% year-to-date as of the close of trading on Monday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lennar as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 9.3%. Since the same quarter one year prior, revenues rose by 26.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Household Durables industry average, but is less than that of the S&P 500. The net income increased by 0.2% when compared to the same quarter one year prior, going from $137.44 million to $137.72 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • LENNAR CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, LENNAR CORP reported lower earnings of $2.14 versus $3.10 in the prior year. This year, the market expects an improvement in earnings ($2.58 versus $2.14).
  • 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. When compared to other companies in the Household Durables industry and the overall market, LENNAR CORP's return on equity is below that of both the industry average and the S&P 500.

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