Today's Water-Logged And Getting Wetter Stock: Wendy's (WEN)

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 Wendy's ( WEN) 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 Wendy's as such a stock due to the following factors:

  • WEN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $53.1 million.
  • WEN has traded 4.8 million shares today.
  • WEN traded in a range 216.7% of the normal price range with a price range of $0.38.
  • WEN traded below its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 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 WEN:

The Wendy's Company, through its subsidiaries, owns and franchises Wendy's restaurant system. The company is involved in operating, developing, and franchising a system of quick-service restaurants. The stock currently has a dividend yield of 2.4%. WEN has a PE ratio of 76.2. Currently there are 4 analysts that rate Wendy's a buy, 2 analysts rate it a sell, and 8 rate it a hold.

The average volume for Wendy's has been 7.3 million shares per day over the past 30 days. Wendy's has a market cap of $3.1 billion and is part of the services sector and leisure industry. The stock has a beta of 0.81 and a short float of 13.7% with 5.82 days to cover. Shares are down 4.5% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Wendy's as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, compelling growth in net income, good cash flow from operations, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • WENDY'S CO has improved earnings per share by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WENDY'S CO increased its bottom line by earning $0.12 versus $0.02 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus $0.12).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 25.3% when compared to the same quarter one year prior, rising from $26.39 million to $33.07 million.
  • Net operating cash flow has increased to $77.16 million or 17.28% when compared to the same quarter last year. In addition, WENDY'S CO has also vastly surpassed the industry average cash flow growth rate of -85.10%.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 46.47% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • WEN's debt-to-equity ratio of 0.76 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that WEN's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.89 is high and demonstrates strong liquidity.

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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