Infosys (INFY) Showing Signs Of Being A Roof Leaker

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 Infosys ( INFY) 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 Infosys as such a stock due to the following factors:

  • INFY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $62.4 million.
  • INFY has traded 455,327 shares today.
  • INFY is trading at 3.95 times the normal volume for the stock at this time of day.
  • INFY 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 INFY:

Infosys Limited provides business consulting, technology, engineering, and outsourcing services worldwide. The stock currently has a dividend yield of 1.7%. INFY has a PE ratio of 18.7. Currently there are 3 analysts that rate Infosys a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Infosys has been 1.5 million shares per day over the past 30 days. Infosys has a market cap of $32.7 billion and is part of the technology sector and computer software & services industry. Shares are up 1.2% year-to-date as of the close of trading on Tuesday.

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 Infosys 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, reasonable valuation levels, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 11.9%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • INFY has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.07, which clearly demonstrates the ability to cover short-term cash needs.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • INFOSYS LTD has improved earnings per share by 15.1% 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, INFOSYS LTD increased its bottom line by earning $3.06 versus $3.02 in the prior year. This year, the market expects an improvement in earnings ($3.36 versus $3.06).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 15.3% when compared to the same quarter one year prior, going from $418.00 million to $482.00 million.

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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