Today's Roof Leaker Stock Is Charles Schwab (SCHW)

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 Charles Schwab ( SCHW) 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 Charles Schwab as such a stock due to the following factors:

  • SCHW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $129.9 million.
  • SCHW has traded 3.4 million shares today.
  • SCHW is trading at 2.05 times the normal volume for the stock at this time of day.
  • SCHW 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 SCHW:

The Charles Schwab Corporation, through its subsidiaries, provides securities brokerage, banking, money management, and financial advisory services. The company operates through two segments, Investor Services and Advisor Services. The stock currently has a dividend yield of 0.8%. SCHW has a PE ratio of 30.4. Currently there are 4 analysts that rate Charles Schwab a buy, 2 analysts rate it a sell, and 7 rate it a hold.

The average volume for Charles Schwab has been 7.5 million shares per day over the past 30 days. Charles Schwab has a market cap of $37.0 billion and is part of the financial sector and financial services industry. The stock has a beta of 1.39 and a short float of 2% with 5.03 days to cover. Shares are up 8.8% 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 Charles Schwab as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, good cash flow from operations, expanding profit margins and increase in stock price during the past year. 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:
  • SCHW's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 9.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SCHWAB (CHARLES) CORP has improved earnings per share by 9.1% 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, SCHWAB (CHARLES) CORP increased its bottom line by earning $0.78 versus $0.69 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus $0.78).
  • Net operating cash flow has increased to $987.00 million or 49.31% when compared to the same quarter last year. In addition, SCHWAB (CHARLES) CORP has also vastly surpassed the industry average cash flow growth rate of -171.57%.
  • 39.75% is the gross profit margin for SCHWAB (CHARLES) CORP 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 20.95% trails the industry average.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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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