Today's Roof Leaker Stock Is AOL (AOL)

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

  • AOL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.6 million.
  • AOL has traded 806,065 shares today.
  • AOL is trading at 1.72 times the normal volume for the stock at this time of day.
  • AOL 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 AOL:

AOL Inc. provides various digital brands, products and services to consumers, advertisers, publishers and subscribers worldwide. AOL has a PE ratio of 46.5. Currently there are 7 analysts that rate AOL a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for AOL has been 990,500 shares per day over the past 30 days. AOL has a market cap of $3.3 billion and is part of the technology sector and internet industry. The stock has a beta of 1.06 and a short float of 12.6% with 4.63 days to cover. Shares are down 9% 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 AOL 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, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth significantly trails the industry average of 43.9%. Since the same quarter one year prior, revenues rose by 12.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although AOL's debt-to-equity ratio of 0.10 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has increased to $125.90 million or 40.82% when compared to the same quarter last year. Despite an increase in cash flow, AOL INC's average is still marginally south of the industry average growth rate of 41.64%.
  • AOL INC' 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, AOL INC reported lower earnings of $1.12 versus $11.02 in the prior year. This year, the market expects an improvement in earnings ($2.07 versus $1.12).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. 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.

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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