Trade-Ideas LLC identified

American Capital

(

ACAS

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified American Capital as such a stock due to the following factors:

  • ACAS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $64.0 million.
  • ACAS has traded 4.2 million shares today.
  • ACAS is trading at 1.76 times the normal volume for the stock at this time of day.
  • ACAS crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on ACAS:

TheStreet Recommends

American Capital, Ltd. is a private equity and venture capital firm specializing in management and employee buyouts, subordinated debt, leveraged finance, mezzanine, acquisition, recapitalization, middle market, early venture, mature, industry consolidation, and growth capital investments. ACAS has a PE ratio of 25. Currently there are 5 analysts that rate American Capital a buy, 1 analyst rates it a sell, and 2 rate it a hold.

The average volume for American Capital has been 3.4 million shares per day over the past 30 days. American has a market cap of $3.9 billion and is part of the financial sector and financial services industry. The stock has a beta of 0.87 and a short float of 2.6% with 1.47 days to cover. Shares are up 0.8% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates American Capital as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and feeble growth in its earnings per share.

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 Capital Markets industry. The net income has significantly decreased by 132.4% when compared to the same quarter one year ago, falling from $114.00 million to -$37.00 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 Capital Markets industry and the overall market, AMERICAN CAPITAL LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • AMERICAN CAPITAL LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN CAPITAL LTD increased its bottom line by earning $1.56 versus $0.50 in the prior year. For the next year, the market is expecting a contraction of 14.4% in earnings ($1.34 versus $1.56).
  • After a year of stock price fluctuations, the net result is that ACAS's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • Net operating cash flow has significantly increased by 73.80% to $73.00 million when compared to the same quarter last year. Despite an increase in cash flow of 73.80%, AMERICAN CAPITAL LTD is still growing at a significantly lower rate than the industry average of 275.70%.

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