Sothebys (BID) 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 Sothebys ( BID) 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 Sothebys as such a stock due to the following factors:

  • BID has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $61.3 million.
  • BID has traded 1.0 million shares today.
  • BID is trading at 10.73 times the normal volume for the stock at this time of day.
  • BID 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 BID:

Sotheby's operates as an auctioneer of authenticated fine art, decorative art, and jewelry. The company operates in three segments: Auction, Finance, and Dealer. The stock currently has a dividend yield of 0.8%. BID has a PE ratio of 33.0. Currently there are 2 analysts that rate Sothebys a buy, 1 analyst rates it a sell, and 1 rates it a hold.

The average volume for Sothebys has been 1.2 million shares per day over the past 30 days. Sothebys has a market cap of $3.5 billion and is part of the services sector and specialty retail industry. The stock has a beta of 2.50 and a short float of 8.5% with 4.25 days to cover. Shares are down 5.3% year-to-date as of the close of trading on Thursday.

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 Sothebys as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • BID's very impressive revenue growth greatly exceeded the industry average of 4.1%. Since the same quarter one year prior, revenues leaped by 57.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 25.86% which was in line with the performance of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • The net income growth 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 increased by 7.5% when compared to the same quarter one year prior, going from -$32.57 million to -$30.13 million.
  • Net operating cash flow has increased to -$147.43 million or 33.35% when compared to the same quarter last year. In addition, SOTHEBY'S has also modestly surpassed the industry average cash flow growth rate of 25.80%.
  • SOTHEBY'S has improved earnings per share by 8.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOTHEBY'S reported lower earnings of $1.56 versus $2.44 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.56).

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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