Roof Leaker To Watch: American Realty Capital Properties (ARCP)

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 American Realty Capital Properties ( ARCP) 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 American Realty Capital Properties as such a stock due to the following factors:

  • ARCP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $91.2 million.
  • ARCP has traded 3.5 million shares today.
  • ARCP is trading at 1.86 times the normal volume for the stock at this time of day.
  • ARCP 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 ARCP:

American Realty Capital Properties, Inc. owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants. The company principally invests in retail and office properties. The stock currently has a dividend yield of 7%. Currently there are 4 analysts that rate American Realty Capital Properties a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for American Realty Capital Properties has been 10.8 million shares per day over the past 30 days. American has a market cap of $10.6 billion and is part of the financial sector and real estate industry. The stock has a beta of -0.14 and a short float of 16.5% with 3.72 days to cover. Shares are up 6.6% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates American Realty Capital Properties as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 980.4% when compared to the same quarter one year ago, falling from -$14.61 million to -$157.83 million.
  • Net operating cash flow has significantly decreased to -$29.10 million or 1197.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • In its most recent trading session, ARCP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • AMERICAN RLTY CAP PPTY INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN RLTY CAP PPTY INC reported poor results of -$2.36 versus -$0.47 in the prior year. This year, the market expects an improvement in earnings ($1.24 versus -$2.36).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN RLTY CAP PPTY 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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