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

Akorn

(

AKRX

) 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 Akorn as such a stock due to the following factors:

  • AKRX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $97.2 million.
  • AKRX has traded 1.4 million shares today.
  • AKRX is trading at 1.64 times the normal volume for the stock at this time of day.
  • AKRX 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 AKRX:

Akorn, Inc. develops, manufactures, and markets generic and branded prescription pharmaceuticals, as well as animal and over-the-counter (OTC) consumer health products in the United States and internationally. It operates through two segments, Prescription Pharmaceuticals and Consumer Health. AKRX has a PE ratio of 132. Currently there are 9 analysts that rate Akorn a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Akorn has been 1.9 million shares per day over the past 30 days. Akorn has a market cap of $5.1 billion and is part of the health care sector and drugs industry. The stock has a beta of 1.32 and a short float of 15.5% with 4.16 days to cover. Shares are up 20.2% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Akorn as a

buy

. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, good cash flow from operations, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

  • AKRX's very impressive revenue growth greatly exceeded the industry average of 1.9%. Since the same quarter one year prior, revenues leaped by 168.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 Pharmaceuticals industry average. The net income increased by 105.3% when compared to the same quarter one year prior, rising from $16.68 million to $34.23 million.
  • Net operating cash flow has increased to $16.65 million or 11.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.98%.
  • The gross profit margin for AKORN INC is rather high; currently it is at 62.95%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, AKRX's net profit margin of 15.02% significantly trails the industry average.
  • Powered by its strong earnings growth of 107.14% and other important driving factors, this stock has surged by 47.93% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

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