Trade-Ideas LLC identified

KAR Auction Services

(

KAR

) 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 KAR Auction Services as such a stock due to the following factors:

  • KAR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $69.7 million.
  • KAR has traded 227,181 shares today.
  • KAR is trading at 8.22 times the normal volume for the stock at this time of day.
  • KAR 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 KAR:

KAR Auction Services, Inc., together with its subsidiaries, provides vehicle auction services in North America. It operates in three segments: ADESA Auctions, IAA, and AFC. The stock currently has a dividend yield of 2.8%. KAR has a PE ratio of 26. Currently there are 7 analysts that rate KAR Auction Services a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for KAR Auction Services has been 1.2 million shares per day over the past 30 days. KAR Auction Services has a market cap of $5.5 billion and is part of the services sector and specialty retail industry. The stock has a beta of 1.10 and a short float of 0.3% with 0.25 days to cover. Shares are up 10.9% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates KAR Auction Services as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, compelling growth in net income and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 5.0%. Since the same quarter one year prior, revenues rose by 12.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.48% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • KAR AUCTION SERVICES INC has improved earnings per share by 13.9% 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, KAR AUCTION SERVICES INC increased its bottom line by earning $1.19 versus $0.48 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $1.19).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Services & Supplies industry. The net income increased by 17.1% when compared to the same quarter one year prior, going from $50.80 million to $59.50 million.
  • 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 Commercial Services & Supplies industry and the overall market on the basis of return on equity, KAR AUCTION SERVICES INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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