Roof Leaker To Watch: Laboratory Corp Of America Hldgs (LH)

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 Laboratory Corp of America Hldgs ( LH) 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 Laboratory Corp of America Hldgs as such a stock due to the following factors:

  • LH has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $76.2 million.
  • LH has traded 1.9 million shares today.
  • LH is trading at 60.75 times the normal volume for the stock at this time of day.
  • LH 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 LH:

Laboratory Corporation of America Holdings operates as an independent clinical laboratory company worldwide. LH has a PE ratio of 17.7. Currently there are 8 analysts that rate Laboratory Corp of America Hldgs a buy, 2 analysts rate it a sell, and 9 rate it a hold.

The average volume for Laboratory Corp of America Hldgs has been 561,400 shares per day over the past 30 days. Laboratory Corp of America Hldgs has a market cap of $9.1 billion and is part of the health care sector and health services industry. The stock has a beta of 0.71 and a short float of 5.8% with 5.76 days to cover. Shares are up 19.6% year-to-date as of the close of trading on Friday.

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 Laboratory Corp of America Hldgs as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • LH's revenue growth trails the industry average of 19.5%. Since the same quarter one year prior, revenues slightly increased by 6.1%. 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.
  • LABORATORY CP OF AMER HLDGS' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LABORATORY CP OF AMER HLDGS increased its bottom line by earning $6.24 versus $5.98 in the prior year. This year, the market expects an improvement in earnings ($6.78 versus $6.24).
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
  • 39.40% is the gross profit margin for LABORATORY CP OF AMER HLDGS which we consider to be strong. Regardless of LH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LH's net profit margin of 8.84% compares favorably to the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, LABORATORY CP OF AMER HLDGS's return on equity exceeds that of both the industry average and the S&P 500.

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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