Trade-Ideas: DepoMed (DEPO) Is Today's Weak On High Relative Volume 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 DepoMed ( DEPO) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified DepoMed as such a stock due to the following factors:

  • DEPO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $20.8 million.
  • DEPO has traded 394,090 shares today.
  • DEPO is trading at 10.45 times the normal volume for the stock at this time of day.
  • DEPO is trading at a new low 8.03% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on DEPO:

Depomed, Inc., a specialty pharmaceutical company, develops products for pain and other conditions, and diseases of the central nervous system in the United States. DEPO has a PE ratio of 11.4. Currently there are 2 analysts that rate DepoMed a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for DepoMed has been 1.1 million shares per day over the past 30 days. DepoMed has a market cap of $897.6 million and is part of the health care sector and drugs industry. The stock has a beta of 0.97 and a short float of 6.9% with 3.40 days to cover. Shares are up 44.7% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates DepoMed as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good.

Highlights from the ratings report include:
  • DEPO's very impressive revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues leaped by 126.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • DEPO 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. To add to this, DEPO has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for DEPOMED INC is currently very high, coming in at 96.32%. Regardless of DEPO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DEPO's net profit margin of 18.81% compares favorably to the industry average.
  • DEPOMED INC reported significant earnings per share improvement 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DEPOMED INC turned its bottom line around by earning $0.74 versus -$0.54 in the prior year. For the next year, the market is expecting a contraction of 37.8% in earnings ($0.46 versus $0.74).

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