Lowe's Companies (LOW) Is Today's Roof Leaker Stock

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 Lowe's Companies ( LOW) 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 Lowe's Companies as such a stock due to the following factors:

  • LOW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $380.9 million.
  • LOW has traded 3.5 million shares today.
  • LOW is trading at 2.48 times the normal volume for the stock at this time of day.
  • LOW 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 LOW:

Lowe's Companies, Inc. operates as a home improvement retailer. It offers products for maintenance, repair, remodeling, and home decorating. The stock currently has a dividend yield of 1.6%. LOW has a PE ratio of 21.6. Currently there are 9 analysts that rate Lowe's Companies a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Lowe's Companies has been 7.0 million shares per day over the past 30 days. Lowe's Companies has a market cap of $47.6 billion and is part of the services sector and retail industry. The stock has a beta of 1.13 and a short float of 1.9% with 2.50 days to cover. Shares are down 6% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lowe's Companies as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, notable return on equity, increase in net income and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • LOWE'S COMPANIES INC has improved earnings per share by 34.3% 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, LOWE'S COMPANIES INC increased its bottom line by earning $1.68 versus $1.42 in the prior year. This year, the market expects an improvement in earnings ($2.17 versus $1.68).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 7.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 26.1% when compared to the same quarter one year prior, rising from $395.00 million to $498.00 million.
  • 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 Specialty Retail industry and the overall market on the basis of return on equity, LOWE'S COMPANIES INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that 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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