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 LKQ ( LKQ) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified LKQ as such a stock due to the following factors:

  • LKQ has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $87.6 million.
  • LKQ has traded 224,302 shares today.
  • LKQ traded in a range 221.9% of the normal price range with a price range of $1.07.
  • LKQ traded below its daily resistance level (quality: 3 days, meaning that the stock is crossing a resistance level set by the last 3 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on LKQ:

LKQ Corporation, together with its subsidiaries, distributes replacement parts, components, and systems used in the repair and maintenance of vehicles in the United States, the United Kingdom, the Netherlands, Belgium, Northern France, Canada, Mexico, and Central America. LKQ has a PE ratio of 19.8. Currently there are 8 analysts that rate LKQ a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for LKQ has been 2.3 million shares per day over the past 30 days. LKQ has a market cap of $7.5 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 0.04 and a short float of 2.1% with 1.78 days to cover. Shares are down 11.2% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates LKQ as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures, notable return on equity and increase in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 14.0%. Since the same quarter one year prior, revenues rose by 27.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • LKQ CORP reported flat earnings per share in the most recent quarter. 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, LKQ CORP increased its bottom line by earning $1.24 versus $1.03 in the prior year. This year, the market expects an improvement in earnings ($1.41 versus $1.24).
  • 39.53% is the gross profit margin for LKQ CORP which we consider to be strong. Regardless of LKQ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LKQ's net profit margin of 4.77% compares favorably to the industry average.
  • LKQ's debt-to-equity ratio of 0.69 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.95 is weak.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Distributors industry and the overall market, LKQ CORP's return on equity is below that of both the industry average and the S&P 500.

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