Trade-Ideas LLC identified

Depomed

(

DEPO

) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Depomed as such a stock due to the following factors:

  • DEPO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $16.7 million.
  • DEPO has traded 89,723 shares today.
  • DEPO is trading at 2.52 times the normal volume for the stock at this time of day.
  • DEPO is trading at a new low 3.15% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. 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 (or avoid losses by trimming weak positions). 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 DEPO:

Depomed, Inc., a specialty pharmaceutical company, engages in the development, sale, and licensing of products for pain and other central nervous system conditions in the United States. Currently there are 8 analysts that rate Depomed a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Depomed has been 1.4 million shares per day over the past 30 days. Depomed has a market cap of $1.2 billion and is part of the health care sector and drugs industry. The stock has a beta of 1.50 and a short float of 25.1% with 13.96 days to cover. Shares are up 5.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Depomed as a

hold

. The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:

  • DEPO's very impressive revenue growth greatly exceeded the industry average of 14.4%. Since the same quarter one year prior, revenues leaped by 225.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for DEPOMED INC is currently very high, coming in at 78.14%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, DEPO's net profit margin of -19.96% significantly underperformed when compared to the industry average.
  • DEPOMED INC 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, DEPOMED INC swung to a loss, reporting -$1.27 versus $1.85 in the prior year. This year, the market expects an improvement in earnings ($1.22 versus -$1.27).
  • The debt-to-equity ratio is very high at 2.68 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, DEPO maintains a poor quick ratio of 0.87, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, DEPOMED INC's return on equity significantly trails that of both the industry average and the S&P 500.

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