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

Approach Resources

(

AREX

) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Approach Resources as such a stock due to the following factors:

  • AREX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $12.8 million.
  • AREX has traded 400,520 shares today.
  • AREX is down 3.6% today.
  • AREX was up 9.2% yesterday.

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More details on AREX:

Approach Resources Inc., an independent energy company, focuses on the exploration, development, production, and acquisition of unconventional oil and gas reserves in the United States. The company's properties are primarily located in the Permian Basin in west Texas. AREX has a PE ratio of 5.0. Currently there are 3 analysts that rate Approach Resources a buy, 5 analysts rate it a sell, and 8 rate it a hold.

The average volume for Approach Resources has been 1.5 million shares per day over the past 30 days. Approach has a market cap of $285.3 million and is part of the basic materials sector and energy industry. The stock has a beta of 2.02 and a short float of 32.4% with 5.56 days to cover. Shares are up 20.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Approach Resources as a

hold

. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 385.66% to $31.98 million when compared to the same quarter last year. In addition, APPROACH RESOURCES INC has also vastly surpassed the industry average cash flow growth rate of -11.68%.
  • The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.19 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 58.0% when compared to the same quarter one year ago, falling from $64.32 million to $26.99 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, APPROACH RESOURCES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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