Weak On High Volume: Westlake Chemical (WLK)

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

  • WLK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $58.0 million.
  • WLK has traded 207,797 shares today.
  • WLK is trading at 2.46 times the normal volume for the stock at this time of day.
  • WLK is trading at a new low 3.06% 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 WLK:

Westlake Chemical Corporation manufactures and markets basic chemicals, vinyls, polymers, and fabricated building products. It operates through two segments, Olefins and Vinyls. The stock currently has a dividend yield of 0.8%. WLK has a PE ratio of 15.4. Currently there are 4 analysts that rate Westlake Chemical a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Westlake Chemical has been 870,400 shares per day over the past 30 days. Westlake Chemical has a market cap of $10.4 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 1.51 and a short float of 4% with 2.29 days to cover. Shares are up 27.2% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Westlake Chemical as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 14.1%. Since the same quarter one year prior, revenues rose by 19.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • WLK's debt-to-equity ratio is very low at 0.26 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.69, which clearly demonstrates the ability to cover short-term cash needs.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 36.45% is the gross profit margin for WESTLAKE CHEMICAL CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.13% is above that of the industry average.
  • Net operating cash flow has increased to $256.25 million or 24.86% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.91%.

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