Domtar (UFS) Shows Signs Of Being Water-Logged And Getting Wetter

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 Domtar ( UFS) 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 Domtar as such a stock due to the following factors:

  • UFS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $37.5 million.
  • UFS has traded 233,030 shares today.
  • UFS traded in a range 200.8% of the normal price range with a price range of $1.91.
  • UFS traded below its daily resistance level (quality: 4 days, meaning that the stock is crossing a resistance level set by the last 4 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 UFS:

Domtar Corporation designs, manufactures, markets, and distributes communications papers, specialty and packaging papers, and absorbent hygiene products in the United States, Canada, Europe, Asia, and internationally. It operates in two segments, Pulp and Paper, and Personal Care. The stock currently has a dividend yield of 3.7%. UFS has a PE ratio of 6.5. Currently there are 5 analysts that rate Domtar a buy, 2 analysts rate it a sell, and 5 rate it a hold.

The average volume for Domtar has been 887,700 shares per day over the past 30 days. Domtar has a market cap of $2.8 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.29 and a short float of 5.2% with 3.02 days to cover. Shares are up 7.5% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Domtar as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.94 is somewhat weak and could be cause for future problems.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Paper & Forest Products industry and the overall market on the basis of return on equity, DOMTAR CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Despite the weak revenue results, UFS has outperformed against the industry average of 15.0%. Since the same quarter one year prior, revenues slightly dropped by 3.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • DOMTAR CORP's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DOMTAR CORP increased its bottom line by earning $6.64 versus $1.37 in the prior year. For the next year, the market is expecting a contraction of 54.1% in earnings ($3.05 versus $6.64).

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