Linn Energy (LINE) Is Today's Perilous Reversal 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 Linn Energy ( LINE) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Linn Energy as such a stock due to the following factors:

  • LINE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $85.7 million.
  • LINE has traded 240,089 shares today.
  • LINE is down 3.5% today.
  • LINE was up 27.6% yesterday.

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More details on LINE:

Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company's properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States. The stock currently has a dividend yield of 24.1%. Currently there are 5 analysts that rate Linn Energy a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Linn Energy has been 2.8 million shares per day over the past 30 days. Linn Energy has a market cap of $4.0 billion and is part of the basic materials sector and energy industry. The stock has a beta of 0.57 and a short float of 6.4% with 1.81 days to cover. Shares are down 68.1% year-to-date as of the close of trading on Monday.

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 Linn Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 2.50 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.24, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LINN ENERGY LLC is currently lower than what is desirable, coming in at 34.04%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -0.28% trails that of the industry average.
  • LINE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 55.59%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • LINN ENERGY LLC reported significant earnings per share improvement 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, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.48 versus -$2.78).

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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