Positive Momentum Foreshadows Urban Outfitters (URBN) Stock Recovery

URBN is more likely to base and do better in the weeks ahead than continue its decline.
By Bruce Kamich ,

NEW YORK (TheStreet) --Dow Theory, as it is known today, was the result of a number of editorials and columns written by Charles Henry Dow between 1900 and 1902. It got the name "Dow Theory" from Dow's friend A. C. Nelson who wrote "The ABC of Stock Speculation" in 1902. One of the main tenets of Dow Theory is that the market is a discounting mechanism -- that all the news, fears, hopes, etc. about a security is already discounted in today's price. Markets and investors are forward looking usually by six to nine months. The ticker tape shows the sequence of trades in a security and is forward looking. Thus, the idea of a column called "Ahead of the Tape" in The Wall Street Journal would not have made any sense to Charles Dow.

Today's "Ahead of the Tape" column is titled "Urban Outfitters' Retro Look Isn't Working," but the column is not ahead of the tape and actually very late in the trend of Urban Outfitters (URBN). URBN is more likely to base and do better in the weeks ahead than continue its decline.

This chart of URBN, above, shows the big decline in shares of URBN this year. Notice that the On-Balance-Volume (OBV) line has moved sideways the past three months while the momentum study shows that the rate of decline in prices has slowed. Momentum is a leading indicator that peaks ahead of prices.

In this chart of URBN, above, we can see prices are back down to a significant support area from 2011 to 2012 with the momentum study improving. This tells us that the decline in URBN shares is a mature trend with the rate of change in prices slowing.

TheStreet Ratings team rates URBAN OUTFITTERS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate URBAN OUTFITTERS INC (URBN) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 6.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • URBN's debt-to-equity ratio is very low at 0.09 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.95 is somewhat weak and could be cause for future problems.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income has decreased by 1.0% when compared to the same quarter one year ago, dropping from $67.51 million to $66.84 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, URBAN OUTFITTERS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • You can view the full analysis from the report here: URBN

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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