Canadian Pacific Railway (CP) Marked As Today's Roof Leaker 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 Canadian Pacific Railway ( CP) 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 Canadian Pacific Railway as such a stock due to the following factors:

  • CP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $189.1 million.
  • CP has traded 1.1 million shares today.
  • CP is trading at 2.18 times the normal volume for the stock at this time of day.
  • CP 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 CP:

Canadian Pacific Railway Limited, through its subsidiaries, operates a transcontinental railway in Canada and the United States. The company provides logistics and supply chain expertise services. The stock currently has a dividend yield of 0.6%. CP has a PE ratio of 35.1. Currently there are 10 analysts that rate Canadian Pacific Railway a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Canadian Pacific Railway has been 1.0 million shares per day over the past 30 days. Canadian Pacific Railway has a market cap of $33.8 billion and is part of the services sector and transportation industry. Shares are up 28.3% year-to-date as of the close of trading on Thursday.

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 Canadian Pacific Railway as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, expanding profit margins and good cash flow from operations. 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:
  • CANADIAN PACIFIC RAILWAY LTD has improved earnings per share by 25.5% 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, CANADIAN PACIFIC RAILWAY LTD increased its bottom line by earning $4.98 versus $2.80 in the prior year. This year, the market expects an improvement in earnings ($8.42 versus $4.98).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Road & Rail industry average. The net income increased by 23.4% when compared to the same quarter one year prior, going from $324.00 million to $400.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.5%. Since the same quarter one year prior, revenues slightly increased by 8.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 45.27% is the gross profit margin for CANADIAN PACIFIC RAILWAY LTD which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 23.95% is above that of the industry average.
  • Net operating cash flow has slightly increased to $534.00 million or 5.95% when compared to the same quarter last year. Despite an increase in cash flow, CANADIAN PACIFIC RAILWAY LTD's cash flow growth rate is still lower than the industry average growth rate of 21.26%.

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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