Water-Logged And Getting Wetter: Family Dollar Stores (FDO)

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 Family Dollar Stores ( FDO) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Family Dollar Stores as such a stock due to the following factors:

  • FDO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $127.6 million.
  • FDO has traded 3.8 million shares today.
  • FDO traded in a range 251.6% of the normal price range with a price range of $2.68.
  • FDO traded below its daily resistance level (quality: 2 days, meaning that the stock is crossing a resistance level set by the last 2 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on FDO:

Family Dollar Stores, Inc. operates a chain of self-service retail discount stores primarily for low- and middle-income consumers in the United States. The stock currently has a dividend yield of 2%. FDO has a PE ratio of 16.0. Currently there are no analysts that rate Family Dollar Stores a buy, 6 analysts rate it a sell, and 13 rate it a hold.

The average volume for Family Dollar Stores has been 1.9 million shares per day over the past 30 days. Family Dollar Stores has a market cap of $6.7 billion and is part of the services sector and retail industry. The stock has a beta of 0.46 and a short float of 4.4% with 1.91 days to cover. Shares are down 9.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Family Dollar Stores as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 10.0%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels.
  • Net operating cash flow has significantly increased by 194.11% to $26.13 million when compared to the same quarter last year. In addition, FAMILY DOLLAR STORES has also vastly surpassed the industry average cash flow growth rate of -2.00%.
  • FAMILY DOLLAR STORES' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FAMILY DOLLAR STORES increased its bottom line by earning $3.83 versus $3.58 in the prior year. For the next year, the market is expecting a contraction of 11.2% in earnings ($3.40 versus $3.83).
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 2.8% when compared to the same quarter one year ago, dropping from $80.28 million to $78.03 million.

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