Arena Pharmaceuticals (ARNA): Today's Weak On High Volume 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 Arena Pharmaceuticals ( ARNA) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Arena Pharmaceuticals as such a stock due to the following factors:

  • ARNA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $11.7 million.
  • ARNA has traded 1.1 million shares today.
  • ARNA is trading at 2.33 times the normal volume for the stock at this time of day.
  • ARNA is trading at a new low 3.08% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on ARNA:

Arena Pharmaceuticals, Inc., a biopharmaceutical company, discovers, develops, and commercializes novel drugs that target G protein-coupled receptors. The company offers BELVIQ, a drug used to treat chronic weight management in adults. Currently there are 3 analysts that rate Arena Pharmaceuticals a buy, 1 analyst rates it a sell, and 2 rate it a hold.

The average volume for Arena Pharmaceuticals has been 3.7 million shares per day over the past 30 days. Arena has a market cap of $836.4 million and is part of the health care sector and drugs industry. The stock has a beta of -4.57 and a short float of 20.4% with 11.52 days to cover. Shares are down 38.8% year-to-date as of the close of trading on Tuesday.

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 Arena Pharmaceuticals as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • 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 Biotechnology industry and the overall market, ARENA PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$25.96 million or 1542.85% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ARNA'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 27.60%, 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.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Biotechnology industry average, but is greater than that of the S&P 500. The net income increased by 38.0% when compared to the same quarter one year prior, rising from -$17.20 million to -$10.67 million.
  • ARENA PHARMACEUTICALS INC has improved earnings per share by 37.5% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ARENA PHARMACEUTICALS INC continued to lose money by earning -$0.10 versus -$0.47 in the prior year. For the next year, the market is expecting a contraction of 150.0% in earnings (-$0.25 versus -$0.10).

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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