Trade-Ideas LLC identified

Weight Watchers International

(

WTW

) 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 Weight Watchers International as such a stock due to the following factors:

  • WTW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $71.2 million.
  • WTW has traded 8.9 million shares today.
  • WTW is trading at 5.54 times the normal volume for the stock at this time of day.
  • WTW 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 WTW:

Weight Watchers International, Inc. provides weight management services worldwide. The company operates through North America, United Kingdom, Continental Europe, and Other segments. WTW has a PE ratio of 3. Currently there is 1 analyst that rates Weight Watchers International a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Weight Watchers International has been 4.3 million shares per day over the past 30 days. Weight Watchers International has a market cap of $977.2 million and is part of the services sector and diversified services industry. The stock has a beta of 3.16 and a short float of 75.5% with 2.81 days to cover. Shares are down 31.8% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Weight Watchers International as a

sell

. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • WEIGHT WATCHERS INTL INC's earnings per share declined by 43.3% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, WEIGHT WATCHERS INTL INC reported lower earnings of $1.74 versus $3.63 in the prior year. For the next year, the market is expecting a contraction of 57.5% in earnings ($0.74 versus $1.74).
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 32.28%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 43.28% compared to 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 significantly decreased to $26.57 million or 64.93% when compared to the same quarter last year. Despite a decrease in cash flow of 64.93%, WEIGHT WATCHERS INTL INC is in line with the industry average cash flow growth rate of -73.85%.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Diversified Consumer Services industry average, but is less than that of the S&P 500. The net income has significantly decreased by 42.5% when compared to the same quarter one year ago, falling from $37.89 million to $21.79 million.
  • The revenue fell significantly faster than the industry average of 11.4%. Since the same quarter one year prior, revenues fell by 20.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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