Arch Coal (ACI) Highlighted As Weak On High Volume

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

  • ACI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $2.9 million.
  • ACI has traded 427,661 shares today.
  • ACI is trading at 3.12 times the normal volume for the stock at this time of day.
  • ACI is trading at a new low 4.18% 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 ACI:

Arch Coal, Inc. produces and sells thermal and metallurgical coal from surface and underground mines located in the United States. Currently there are 3 analysts that rate Arch Coal a buy, 7 analysts rate it a sell, and 6 rate it a hold.

The average volume for Arch Coal has been 4.0 million shares per day over the past 30 days. Arch Coal has a market cap of $214.8 million and is part of the basic materials sector and metals & mining industry. The stock has a beta of 3.33 and a short float of 24.4% with 15.84 days to cover. Shares are down 43.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Arch Coal as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:
  • The gross profit margin for ARCH COAL INC is rather low; currently it is at 16.94%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ACI's net profit margin of -16.71% significantly underperformed when compared to the industry average.
  • ACI'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 77.91%, 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 3.30 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, ACI has managed to keep a strong quick ratio of 2.20, which demonstrates the ability to cover short-term cash needs.
  • 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite the weak revenue results, ACI has outperformed against the industry average of 20.3%. Since the same quarter one year prior, revenues slightly dropped by 8.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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