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 EXCO Resources ( XCO) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified EXCO Resources as such a stock due to the following factors:

  • XCO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $12.9 million.
  • XCO has traded 50,881 shares today.
  • XCO is down 4.5% today.
  • XCO was up 5.7% yesterday.

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More details on XCO:

EXCO Resources, Inc., an independent oil and natural gas company, is engaged in the acquisition, exploration, exploitation, development, and production of onshore oil and natural gas properties with a focus on shale resource plays in the United States. The stock currently has a dividend yield of 6.3%. Currently there are no analysts that rate EXCO Resources a buy, 3 analysts rate it a sell, and 2 rate it a hold.

The average volume for EXCO Resources has been 4.5 million shares per day over the past 30 days. EXCO has a market cap of $870.6 million and is part of the basic materials sector and energy industry. The stock has a beta of 0.68 and a short float of 23.2% with 8.79 days to cover. Shares are down 36.7% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates EXCO Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 3.63 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • XCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 43.45%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • EXCO RESOURCES 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EXCO RESOURCES INC turned its bottom line around by earning $0.11 versus -$6.51 in the prior year. For the next year, the market is expecting a contraction of 13.6% in earnings ($0.10 versus $0.11).
  • XCO, with its decline in revenue, slightly underperformed the industry average of 6.7%. Since the same quarter one year prior, revenues slightly dropped by 8.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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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