Put JACK Back in the Box
NEW YORK (TheStreet) -- Jack in the Box (JACK) - Get Report had a big rally, seeing more than a three-fold advance in recent years, but it has been eroding all year and more weakness may lie ahead.
From February until early August, JACK traded in an $85 to $100 price range, but it turned down in August. We can see a death cross with the 50-day and 200-day simple moving averages in September in the chart above. Notice how the On-Balance-Volume (OBV) line peaked in March with a Moving Average Convergence Divergence (MACD) crossover. JACK has been sinking this fall, when many other securities have been coming back. This is poor relative strength.
In this longer-term view, we can see how prices have weakened and the 40-week moving average has turned down (negative slope). The OBV line on this timeframe has peaked and the MACD oscillator is still bearish. Going with the trend instead of fighting it, we look for JACK to eventually work lower to retest the next chart support below the market in the $60 to $50 area.
TheStreet Ratings team rates JACK IN THE BOX INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate JACK IN THE BOX INC (JACK) 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, notable return on equity and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- JACK's revenue growth has slightly outpaced the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 2.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- JACK IN THE BOX INC has improved earnings per share by 47.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, JACK IN THE BOX INC increased its bottom line by earning $2.95 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($3.64 versus $2.95).
- Net operating cash flow has decreased to $61.73 million or 29.12% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The debt-to-equity ratio is very high at 44.84 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.29, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full analysis from the report here: JACK
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.