Trade-Ideas LLC identified

Mohawk Industries

(

MHK

) 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 Mohawk Industries as such a stock due to the following factors:

  • MHK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $124.8 million.
  • MHK has traded 630,919 shares today.
  • MHK is trading at 2.25 times the normal volume for the stock at this time of day.
  • MHK 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 MHK:

Mohawk Industries, Inc. designs, manufactures, sources, distributes, and markets flooring products for residential and commercial applications for remodeling and new constructions worldwide. It operates in three segments: Carpet, Ceramic, and Laminate and Wood. MHK has a PE ratio of 28. Currently there are 7 analysts that rate Mohawk Industries a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Mohawk Industries has been 647,400 shares per day over the past 30 days. Mohawk has a market cap of $14.3 billion and is part of the consumer goods sector and consumer durables industry. The stock has a beta of 1.19 and a short float of 2.5% with 2.26 days to cover. Shares are up 23.3% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Mohawk Industries as a

buy

. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, expanding profit margins, good cash flow from operations, solid stock price performance and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • MOHAWK INDUSTRIES INC has improved earnings per share by 21.6% 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, MOHAWK INDUSTRIES INC increased its bottom line by earning $7.25 versus $5.05 in the prior year. This year, the market expects an improvement in earnings ($10.10 versus $7.25).
  • 35.34% is the gross profit margin for MOHAWK INDUSTRIES INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.13% is above that of the industry average.
  • Net operating cash flow has significantly increased by 87.80% to $317.17 million when compared to the same quarter last year. In addition, MOHAWK INDUSTRIES INC has also vastly surpassed the industry average cash flow growth rate of -88.51%.
  • 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 40.75% over the past year, a rise that has exceeded that of the S&P 500 Index. 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.
  • MHK, with its decline in revenue, underperformed when compared the industry average of 12.5%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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