Water-Logged And Getting Wetter Stock Of The Day: Kansas City Southern (KSU)

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 Kansas City Southern ( KSU) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Kansas City Southern as such a stock due to the following factors:

  • KSU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $81.8 million.
  • KSU has traded 194,007 shares today.
  • KSU traded in a range 206.9% of the normal price range with a price range of $4.24.
  • KSU traded below its daily resistance level (quality: 45 days, meaning that the stock is crossing a resistance level set by the last 45 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on KSU:

Kansas City Southern, through its subsidiaries, engages in the freight rail transportation business. The stock currently has a dividend yield of 0.9%. KSU has a PE ratio of 29.1. Currently there are 3 analysts that rate Kansas City Southern a buy, 1 analyst rates it a sell, and 7 rate it a hold.

The average volume for Kansas City Southern has been 873,100 shares per day over the past 30 days. Kansas City Southern has a market cap of $13.8 billion and is part of the services sector and transportation industry. The stock has a beta of 1.03 and a short float of 3% with 3.91 days to cover. Shares are up 1.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Kansas City Southern as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.4%. Since the same quarter one year prior, revenues slightly increased by 9.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 43.45% is the gross profit margin for KANSAS CITY SOUTHERN which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 20.38% trails the industry average.
  • Net operating cash flow has increased to $285.50 million or 16.00% when compared to the same quarter last year. Despite an increase in cash flow, KANSAS CITY SOUTHERN's average is still marginally south of the industry average growth rate of 21.05%.
  • The current debt-to-equity ratio, 0.60, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that KSU'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.
  • KANSAS CITY SOUTHERN has improved earnings per share by 16.8% in the most recent quarter compared to the same quarter a year ago. 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, KANSAS CITY SOUTHERN reported lower earnings of $3.18 versus $3.42 in the prior year. This year, the market expects an improvement in earnings ($4.78 versus $3.18).

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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