Trade-Ideas: Donaldson (DCI) Is Today's Weak On High Relative Volume Stock

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

  • DCI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $15.3 million.
  • DCI has traded 172,497 shares today.
  • DCI is trading at 11.00 times the normal volume for the stock at this time of day.
  • DCI is trading at a new low 6.12% 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 DCI:

Donaldson Company, Inc. engages in the manufacture and sale of filtration systems and replacement parts. The company operates through two segments, Engine Products and Industrial Products. The stock currently has a dividend yield of 1.5%. DCI has a PE ratio of 24.4. Currently there is 1 analyst that rates Donaldson a buy, 1 analyst rates it a sell, and 7 rate it a hold.

The average volume for Donaldson has been 472,700 shares per day over the past 30 days. Donaldson has a market cap of $5.9 billion and is part of the industrial goods sector and industrial industry. The stock has a beta of 0.87 and a short float of 2.6% with 8.97 days to cover. Shares are down 1.6% year-to-date as of the close of trading on Wednesday.

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 Donaldson 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, notable return on equity, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:
  • DCI's revenue growth has slightly outpaced the industry average of 2.4%. Since the same quarter one year prior, revenues slightly increased by 5.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.43, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.47, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Machinery industry and the overall market, DONALDSON CO INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • DONALDSON CO INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DONALDSON CO INC increased its bottom line by earning $1.76 versus $1.64 in the prior year. This year, the market expects an improvement in earnings ($1.93 versus $1.76).
  • 38.27% is the gross profit margin for DONALDSON CO INC which we consider to be strong. Regardless of DCI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DCI's net profit margin of 10.91% compares favorably to the industry average.

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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