Prospect Capital Corporation (PSEC): Today's Weak On High Volume Stock

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

  • PSEC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $23.8 million.
  • PSEC has traded 1.5 million shares today.
  • PSEC is trading at 12.20 times the normal volume for the stock at this time of day.
  • PSEC is trading at a new low 5.02% 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 PSEC:

Prospect Capital Corporation is a business development company. The stock currently has a dividend yield of 12.4%. PSEC has a PE ratio of 8.2. Currently there are 3 analysts that rate Prospect Capital Corporation a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Prospect Capital Corporation has been 2.1 million shares per day over the past 30 days. Prospect has a market cap of $2.9 billion and is part of the financial sector and financial services industry. The stock has a beta of 0.35 and a short float of 7.3% with 7.82 days to cover. Shares are down 2.3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Prospect Capital Corporation as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and disappointing return on equity.

Highlights from the ratings report include:
  • PSEC's revenue growth has slightly outpaced the industry average of 4.4%. Since the same quarter one year prior, revenues rose by 11.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 67.16%. Regardless of PSEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PSEC's net profit margin of 43.22% significantly outperformed against the industry.
  • Net operating cash flow has significantly increased by 56.83% to -$125.47 million when compared to the same quarter last year. Despite an increase in cash flow of 56.83%, PROSPECT CAPITAL CORP is still growing at a significantly lower rate than the industry average of 141.93%.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, PSEC has underperformed the S&P 500 Index, declining 22.76% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • PROSPECT CAPITAL CORP's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, PROSPECT CAPITAL CORP increased its bottom line by earning $1.08 versus $1.07 in the prior year. For the next year, the market is expecting a contraction of 1.9% in earnings ($1.06 versus $1.08).

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