Vertex Pharmaceuticals (VRTX) 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 Vertex Pharmaceuticals ( VRTX) 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 Vertex Pharmaceuticals as such a stock due to the following factors:

  • VRTX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $103.8 million.
  • VRTX has traded 345,998 shares today.
  • VRTX is trading at 2.22 times the normal volume for the stock at this time of day.
  • VRTX 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 VRTX:

Vertex Pharmaceuticals Incorporated is engaged in discovering, developing, manufacturing, and commercializing small molecule drugs for patients with serious diseases. Currently there are 14 analysts that rate Vertex Pharmaceuticals a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Vertex Pharmaceuticals has been 1.6 million shares per day over the past 30 days. Vertex has a market cap of $19.6 billion and is part of the health care sector and drugs industry. The stock has a beta of -0.26 and a short float of 2.5% with 3.95 days to cover. Shares are up 11.7% 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 Vertex Pharmaceuticals as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Biotechnology industry. The net income increased by 158.2% when compared to the same quarter one year prior, rising from -$76.15 million to $44.29 million.
  • VRTX's revenue growth trails the industry average of 15.8%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for VERTEX PHARMACEUTICALS INC is currently very high, coming in at 98.68%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 12.61% trails the industry average.
  • Net operating cash flow has decreased to $28.86 million or 28.85% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 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 Biotechnology industry and the overall market, VERTEX PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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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