Today's Weak On High Volume Stock: Gerdau (GGB)

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

  • GGB has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $20.8 million.
  • GGB has traded 580,193 shares today.
  • GGB is trading at 2.57 times the normal volume for the stock at this time of day.
  • GGB is trading at a new low 3.12% 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 GGB:

Gerdau S.A. produces and commercializes steel products worldwide. It operates through Brazil, North America, Latin America, Special Steel, and Iron Ore segments. The stock currently has a dividend yield of 1.3%. GGB has a PE ratio of 2.8. Currently there are 2 analysts that rate Gerdau a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Gerdau has been 5.7 million shares per day over the past 30 days. Gerdau has a market cap of $5.8 billion and is part of the basic materials sector and metals & mining industry. Shares are down 4.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Gerdau as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 18.4%. Since the same quarter one year prior, revenues fell by 14.1%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
  • GGB's debt-to-equity ratio of 0.61 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 1.47 is sturdy.
  • The gross profit margin for GERDAU SA is rather low; currently it is at 17.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.82% trails that of the industry average.
  • Net operating cash flow has decreased to $170.22 million or 41.43% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, GERDAU SA has marginally lower results.

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