Discover Financial Services (DFS) 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 Discover Financial Services ( DFS) 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 Discover Financial Services as such a stock due to the following factors:

  • DFS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $168.5 million.
  • DFS has traded 1.3 million shares today.
  • DFS is trading at 1.72 times the normal volume for the stock at this time of day.
  • DFS 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 DFS:

Discover Financial Services, a bank holding company, provides a range of financial products and services in the United States. The company operates in two segments, Direct Banking and Payment Services. The stock currently has a dividend yield of 1.5%. DFS has a PE ratio of 12.0. Currently there are 10 analysts that rate Discover Financial Services a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Discover Financial Services has been 2.6 million shares per day over the past 30 days. Discover Financial Services has a market cap of $28.6 billion and is part of the financial sector and financial services industry. The stock has a beta of 1.07 and a short float of 1.1% with 1.84 days to cover. Shares are up 13% 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 Discover Financial Services as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, increase in net income and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 5.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DISCOVER FINANCIAL SVCS INC has improved earnings per share by 14.2% 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, DISCOVER FINANCIAL SVCS INC increased its bottom line by earning $4.96 versus $4.46 in the prior year. This year, the market expects an improvement in earnings ($5.34 versus $4.96).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Consumer Finance industry average. The net income increased by 8.6% when compared to the same quarter one year prior, going from $593.00 million to $644.00 million.
  • 47.46% is the gross profit margin for DISCOVER FINANCIAL SVCS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.98% is above that of 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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