Trade-Ideas: Estee Lauder Cos (EL) Is Today's

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 or Stephanie Link.

Trade-Ideas LLC identified Estee Lauder Cos ( EL) 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 Estee Lauder Cos as such a stock due to the following factors:

  • EL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $163.7 million.
  • EL has traded 1.7 million shares today.
  • EL is trading at 2.84 times the normal volume for the stock at this time of day.
  • EL 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 EL:

The Estee Lauder Companies Inc. engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide. The stock currently has a dividend yield of 1.1%. EL has a PE ratio of 26.4. Currently there are 8 analysts that rate Estee Lauder Cos a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for Estee Lauder Cos has been 1.8 million shares per day over the past 30 days. Estee Lauder Cos has a market cap of $16.3 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.18 and a short float of 2.1% with 1.73 days to cover. Shares are up 13.8% year to date as of the close of trading on Monday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Estee Lauder Cos as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • EL's revenue growth has slightly outpaced the industry average of 6.1%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.38, which illustrates the ability to avoid short-term cash problems.
  • LAUDER (ESTEE) COS INC reported significant earnings per share improvement 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, LAUDER (ESTEE) COS INC increased its bottom line by earning $2.58 versus $2.16 in the prior year. This year, the market expects an improvement in earnings ($2.89 versus $2.58).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Personal Products industry. The net income increased by 83.6% when compared to the same quarter one year prior, rising from $51.20 million to $94.00 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.
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