Coca-Cola (KO) Marked As 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 Coca-Cola ( KO) 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 Coca-Cola as such a stock due to the following factors:

  • KO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $587.5 million.
  • KO has traded 4.4 million shares today.
  • KO is trading at 1.74 times the normal volume for the stock at this time of day.
  • KO 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 KO:

The Coca-Cola Company, a beverage company, manufactures and distributes coke, diet coke, and other soft drinks worldwide. The company primarily offers nonalcoholic beverages, including sparkling beverages and still beverages. The stock currently has a dividend yield of 3%. KO has a PE ratio of 21.5. Currently there are 9 analysts that rate Coca-Cola a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Coca-Cola has been 11.9 million shares per day over the past 30 days. Coca-Cola has a market cap of $178.8 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 0.35 and a short float of 1.3% with 4.26 days to cover. Shares are down 2.3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Coca-Cola as a buy. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • The gross profit margin for COCA-COLA CO is rather high; currently it is at 65.60%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.63% is above that of the industry average.
  • COCA-COLA CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, COCA-COLA CO reported lower earnings of $1.90 versus $1.96 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.90).
  • KO, with its decline in revenue, slightly underperformed the industry average of 3.2%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Beverages industry and the overall market, COCA-COLA CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • In its most recent trading session, KO 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 stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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