Concho Resources (CXO) Roof Leaking 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 Concho Resources ( CXO) 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 Concho Resources as such a stock due to the following factors:

  • CXO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $149.7 million.
  • CXO has traded 1.1 million shares today.
  • CXO is trading at 1.66 times the normal volume for the stock at this time of day.
  • CXO 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 CXO:

Concho Resources Inc., an independent oil and natural gas company, acquires, develops, and explores for oil and natural gas properties in the Unites States. The company's principal operating areas are located in the Permian Basin region of southeast New Mexico and West Texas. CXO has a PE ratio of 56.4. Currently there are 15 analysts that rate Concho Resources a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Concho Resources has been 1.0 million shares per day over the past 30 days. Concho has a market cap of $14.4 billion and is part of the basic materials sector and energy industry. The stock has a beta of 2.17 and a short float of 3.9% with 2.60 days to cover. Shares are up 20.4% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Concho Resources as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins, largely solid financial position with reasonable debt levels by most measures 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 came in higher than the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 25.2%. 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.
  • Net operating cash flow has increased to $378.75 million or 41.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.18%.
  • The gross profit margin for CONCHO RESOURCES INC is currently very high, coming in at 80.85%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.67% trails the industry average.
  • The debt-to-equity ratio is somewhat low, currently at 0.70, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.97 is somewhat weak and could be cause for future problems.
  • CONCHO RESOURCES INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CONCHO RESOURCES INC reported lower earnings of $2.28 versus $3.93 in the prior year. This year, the market expects an improvement in earnings ($4.27 versus $2.28).

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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