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Trade-Ideas LLC identified

Rowan Companies

(

RDC

) 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 Rowan Companies as such a stock due to the following factors:

  • RDC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.1 million.
  • RDC has traded 123,983 shares today.
  • RDC is trading at 1.88 times the normal volume for the stock at this time of day.
  • RDC 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 RDC:

TheStreet Recommends

Rowan Companies plc provides offshore oil and gas contract drilling services. It operates a fleet of 31 mobile offshore drilling units, including 27 self-elevating jack-up rigs and 4 ultra-deepwater drillships. The stock currently has a dividend yield of 2.4%. RDC has a PE ratio of 5. Currently there are 5 analysts that rate Rowan Companies a buy, 1 analyst rates it a sell, and 11 rate it a hold.

The average volume for Rowan Companies has been 4.3 million shares per day over the past 30 days. Rowan Companies has a market cap of $2.1 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.66 and a short float of 22.7% with 6.59 days to cover. Shares are down 0.1% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Rowan Companies as a

hold

. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Highlights from the ratings report include:

  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 3.42, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, ROWAN COMPANIES PLC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Looking at the price performance of RDC's shares over the past 12 months, there is not much good news to report: the stock is down 26.25%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Net operating cash flow has decreased to $160.05 million or 34.61% when compared to the same quarter last year. Despite a decrease in cash flow of 34.61%, ROWAN COMPANIES PLC is in line with the industry average cash flow growth rate of -36.18%.

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