Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified

Healthsouth

(

HLS

) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Healthsouth as such a stock due to the following factors:

  • HLS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.6 million
  • HLS has traded 735,903 shares today
  • HLS traded in a range 202.3% of the normal price range with a price range of $1.97
  • HLS traded below its daily resistance level (quality: seven days, meaning that the stock is crossing a resistance level set by the last seven calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal)

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on HLS:

HealthSouth Corporation owns and operates inpatient rehabilitation hospitals in the United States. The company provides specialized rehabilitative treatment on an inpatient and outpatient basis. The stock currently has a dividend yield of 1.8%. HLS has a PE ratio of 21.39999999999999857891452847979962825775146484375. Currently there are seven analysts that rate Healthsouth a buy, one analyst rates it a sell, and three rate it a hold.

The average volume for Healthsouth has been 626,600 shares per day over the past 30 days. Healthsouth has a market cap of $4.19 billion and is part of the health care sector and health services industry. The stock has a beta of 1.35 and a short float of 6.6% with 8.36 days to cover. Shares are up 24.6% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Healthsouth as a

buy

. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, growth in earnings per share and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • Powered by its strong earnings growth of 232.25% and other important driving factors, this stock has surged by 33.30% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HLS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • HLS's revenue growth trails the industry average of 20.6%. Since the same quarter one year prior, revenues slightly increased by 6.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • HEALTHSOUTH CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HEALTHSOUTH CORP reported lower earnings of $2.23 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($2.28 versus $2.23).
  • 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 Health Care Providers & Services industry and the overall market, HEALTHSOUTH CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 3.76 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, HLS's quick ratio is somewhat strong at 1.21, demonstrating the ability to handle short-term liquidity needs.

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