Rockwell Automation (ROK) Stock's Roller Coaster Ride Will Continue, Potential 25% Downside
NEW YORK (TheStreet) -- The price of Rockwell Automation (ROK) - Get Report has been on a roller coaster ride this year. Prices topped out in May, June and July before turning below the flat 200-day moving average. See chart below.
ROK's up and down swings seen in the chart above are probably not over. The On-Balance-Volume (OBV) line has been declining since July and tells us that volume has been heavier on days when ROK has closed lower. This movement indicates liquidation and foreshadows further price weakness.
This longer-term chart of ROK, above, shows what could be a large double top formation with a neckline at $100. A weekly close below $100 for ROK should refresh the downtrend and point to a test of next chart support in the $90-$80 area. Purchases of ROK should be deferred.
TheStreet Ratings team rates ROCKWELL AUTOMATION as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate ROCKWELL AUTOMATION (ROK) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The current debt-to-equity ratio, 0.58, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, ROK has a quick ratio of 2.29, which demonstrates the ability of the company to cover short-term liquidity needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Electrical Equipment industry and the overall market, ROCKWELL AUTOMATION's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 45.67% is the gross profit margin for ROCKWELL AUTOMATION which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.08% is above that of the industry average.
- ROCKWELL AUTOMATION has improved earnings per share by 6.3% 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. During the past fiscal year, ROCKWELL AUTOMATION increased its bottom line by earning $5.91 versus $5.36 in the prior year. This year, the market expects an improvement in earnings ($6.60 versus $5.91).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Electrical Equipment industry average. The net income increased by 3.2% when compared to the same quarter one year prior, going from $199.70 million to $206.10 million.
- You can view the full analysis from the report here: ROK
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.