Trade-Ideas: Ecolab (ECL) Is Today's

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

  • ECL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $96.4 million.
  • ECL has traded 979,379 shares today.
  • ECL is trading at 2.22 times the normal volume for the stock at this time of day.
  • ECL 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 ECL:

Ecolab Inc. provides water, hygiene, and energy technologies and services for customers worldwide. The company operates in four segments: Global Industrial, Global Institutional, Global Energy, and Other. The stock currently has a dividend yield of 1%. ECL has a PE ratio of 30.4. Currently there are 12 analysts that rate Ecolab a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Ecolab has been 1.1 million shares per day over the past 30 days. Ecolab has a market cap of $34.4 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 0.59 and a short float of 1.3% with 4.03 days to cover. Shares are up 8.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Quant Ratings rates Ecolab as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, good cash flow from operations, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.8%. Since the same quarter one year prior, revenues slightly increased by 6.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ECOLAB INC has improved earnings per share by 19.0% 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. We feel that this trend should continue. During the past fiscal year, ECOLAB INC increased its bottom line by earning $3.15 versus $2.36 in the prior year. This year, the market expects an improvement in earnings ($4.19 versus $3.15).
  • Net operating cash flow has increased to $613.10 million or 14.34% when compared to the same quarter last year. In addition, ECOLAB INC has also modestly surpassed the industry average cash flow growth rate of 11.80%.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Chemicals industry average. The net income increased by 18.5% when compared to the same quarter one year prior, going from $308.00 million to $364.90 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that ECL's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.


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