Weak On High Volume: Walter Energy (WLT)

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.

Trade-Ideas LLC identified Walter Energy ( WLT) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Walter Energy as such a stock due to the following factors:

  • WLT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $3.6 million.
  • WLT has traded 1.7 million shares today.
  • WLT is trading at 10.12 times the normal volume for the stock at this time of day.
  • WLT is trading at a new low 8.19% 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 WLT:

Walter Energy, Inc. produces and exports metallurgical coal for the steel industry. It operates through two segments, U.S. Operations, and Canadian and U.K. Operations. The stock currently has a dividend yield of 6.6%. Currently there are no analysts that rate Walter Energy a buy, 3 analysts rate it a sell, and 6 rate it a hold.

The average volume for Walter Energy has been 3.1 million shares per day over the past 30 days. Walter Energy has a market cap of $43.6 million and is part of the basic materials sector and metals & mining industry. The stock has a beta of 2.97 and a short float of 42.9% with 4.17 days to cover. Shares are down 55.6% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Walter Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk.

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 Metals & Mining industry and the overall market, WALTER ENERGY 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 -$118.92 million or 801.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • WLT'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 95.02%, 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 debt-to-equity ratio is very high at 11.14 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, WLT has managed to keep a strong quick ratio of 1.63, which demonstrates the ability to cover short-term cash needs.
  • WLT, with its decline in revenue, underperformed when compared the industry average of 18.9%. Since the same quarter one year prior, revenues fell by 39.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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