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 ServiceNow ( NOW) 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 ServiceNow as such a stock due to the following factors:
- NOW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $93.0 million.
- NOW has traded 920,407 shares today.
- NOW is trading at 2.57 times the normal volume for the stock at this time of day.
- NOW 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. EXCLUSIVE OFFER: Get the inside scoop on opportunities in NOW with the Ticky from Trade-Ideas. See the FREE profile for NOW NOW at Trade-Ideas More details on NOW: ServiceNow, Inc. provides cloud-based services to automate enterprise IT operations primarily in North America, Europe, the Middle East, Africa, the Asia Pacific, and internationally. Currently there are 13 analysts that rate ServiceNow a buy, no analysts rate it a sell, and 1 rates it a hold. The average volume for ServiceNow has been 2.6 million shares per day over the past 30 days. ServiceNow has a market cap of $8.9 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.17 and a short float of 8.2% with 5.49 days to cover. Shares are up 7% year-to-date as of the close of trading on Monday. 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 ServiceNow as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk 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 Software industry. The net income has significantly decreased by 224.2% when compared to the same quarter one year ago, falling from -$13.36 million to -$43.31 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, SERVICENOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The debt-to-equity ratio of 1.04 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, NOW has managed to keep a strong quick ratio of 2.09, which demonstrates the ability to cover short-term cash needs.
- SERVICENOW 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SERVICENOW INC reported poor results of -$0.54 versus -$0.31 in the prior year. This year, the market expects an improvement in earnings (-$0.06 versus -$0.54).
- The gross profit margin for SERVICENOW INC is rather high; currently it is at 67.52%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -31.13% is in-line with the industry average.
- You can view the full ServiceNow Ratings Report.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.