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 Costco Wholesale Corporation ( COST) 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 Costco Wholesale Corporation as such a stock due to the following factors:
- COST has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $152.5 million.
- COST has traded 410,717 shares today.
- COST is trading at 2.80 times the normal volume for the stock at this time of day.
- COST 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. EXCLUSIVE OFFER: Get the inside scoop on opportunities in COST with the Ticky from Trade-Ideas. See the FREE profile for COST NOW at Trade-Ideas More details on COST: Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. The stock currently has a dividend yield of 1.1%. COST has a PE ratio of 25.1. Currently there are 12 analysts that rate Costco Wholesale Corporation a buy, no analysts rate it a sell, and 9 rate it a hold. The average volume for Costco Wholesale Corporation has been 1.8 million shares per day over the past 30 days. Costco Wholesale has a market cap of $51.2 billion and is part of the services sector and retail industry. The stock has a beta of 0.44 and a short float of 1.2% with 3.99 days to cover. Shares are down 2.7% year-to-date as of the close of trading on Tuesday. 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 Costco Wholesale Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 5.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- COSTCO WHOLESALE CORP's earnings per share improvement from the most recent quarter was slightly positive. 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, COSTCO WHOLESALE CORP increased its bottom line by earning $4.63 versus $3.90 in the prior year. This year, the market expects an improvement in earnings ($4.85 versus $4.63).
- The net income growth from the same quarter one year ago has exceeded that of the Food & Staples Retailing industry average, but is less than that of the S&P 500. The net income increased by 2.2% when compared to the same quarter one year prior, going from $416.00 million to $425.00 million.
- The current debt-to-equity ratio, 0.44, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick ratio, which is currently 0.51, displays a potential problem in covering 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 Food & Staples Retailing industry and the overall market on the basis of return on equity, COSTCO WHOLESALE CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full Costco Wholesale Corporation Ratings Report.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.