Roof Leaker To Watch: Tenet Healthcare (THC)

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 Tenet Healthcare ( THC) 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 Tenet Healthcare as such a stock due to the following factors:

  • THC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $74.6 million.
  • THC has traded 4.3 million shares today.
  • THC is trading at 6.92 times the normal volume for the stock at this time of day.
  • THC 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 THC:

Tenet Healthcare Corporation, an investor-owned health care services company, owns and operates acute care hospitals, ambulatory surgery centers, diagnostic imaging centers, urgent care centers, and related health care facilities in the United States. Currently there are 7 analysts that rate Tenet Healthcare a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Tenet Healthcare has been 1.7 million shares per day over the past 30 days. Tenet Healthcare has a market cap of $4.7 billion and is part of the health care sector and health services industry. The stock has a beta of 1.70 and a short float of 9.9% with 5.14 days to cover. Shares are up 14.7% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Tenet Healthcare as a hold. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share and revenue growth. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.1%. Since the same quarter one year prior, revenues slightly increased by 8.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, TENET HEALTHCARE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for TENET HEALTHCARE CORP is currently extremely low, coming in at 11.96%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.16% trails that of the industry average.

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