Weak On High Volume: Orexigen Therapeutics (OREX)

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 Orexigen Therapeutics ( OREX) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Orexigen Therapeutics as such a stock due to the following factors:

  • OREX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $21.9 million.
  • OREX has traded 1.7 million shares today.
  • OREX is trading at 7.07 times the normal volume for the stock at this time of day.
  • OREX is trading at a new low 6.19% 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 OREX:

Orexigen Therapeutics, Inc., a biopharmaceutical company, focuses on the development of pharmaceutical product candidates for the treatment of obesity. Currently there are 5 analysts that rate Orexigen Therapeutics a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Orexigen Therapeutics has been 3.0 million shares per day over the past 30 days. Orexigen has a market cap of $746.2 million and is part of the health care sector and drugs industry. The stock has a beta of 1.48 and a short float of 22.9% with 6.66 days to cover. Shares are up 8.2% 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 Orexigen Therapeutics as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself.

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 Biotechnology industry. The net income has significantly decreased by 34.3% when compared to the same quarter one year ago, falling from -$18.25 million to -$24.51 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Biotechnology industry and the overall market, OREXIGEN THERAPEUTICS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$21.92 million or 16.88% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio is very high at 149.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 5.59, which shows the ability to cover short-term cash needs.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, OREX has underperformed the S&P 500 Index, declining 12.69% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

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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