ResMed (RMD) Spotted As Roof Leaker Today

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 ResMed ( RMD) 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 ResMed as such a stock due to the following factors:

  • RMD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.0 million.
  • RMD has traded 418,078 shares today.
  • RMD is trading at 2.16 times the normal volume for the stock at this time of day.
  • RMD 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 RMD:

ResMed Inc., through its subsidiaries, engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders. The stock currently has a dividend yield of 2.2%. RMD has a PE ratio of 21.4. Currently there are 5 analysts that rate ResMed a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for ResMed has been 747,600 shares per day over the past 30 days. ResMed has a market cap of $7.3 billion and is part of the health care sector and health services industry. The stock has a beta of 0.66 and a short float of 22.6% with 30.39 days to cover. Shares are up 5.5% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates ResMed as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • RESMED INC has improved earnings per share by 22.0% 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, RESMED INC increased its bottom line by earning $2.40 versus $2.10 in the prior year. This year, the market expects an improvement in earnings ($2.48 versus $2.40).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Health Care Equipment & Supplies industry average. The net income increased by 20.2% when compared to the same quarter one year prior, going from $73.01 million to $87.74 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 0.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • RMD's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.69, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, RESMED INC's return on equity exceeds 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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