Strong On High Relative Volume: Wendy's (WEN)

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 Wendy's ( WEN) as a strong on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Wendy's as such a stock due to the following factors:

  • WEN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $40.5 million.
  • WEN has traded 1.6 million shares today.
  • WEN is trading at 11.61 times the normal volume for the stock at this time of day.
  • WEN is trading at a new high 7.09% above yesterday's close.

'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into 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. 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 WEN:

The Wendy's Company, through its subsidiaries, owns and franchises Wendy's restaurant system. The company is involved in operating, developing, and franchising a system of quick-service restaurants. The stock currently has a dividend yield of 2.1%. WEN has a PE ratio of 32.7. Currently there are 2 analysts that rate Wendy's a buy, 1 analyst rates it a sell, and 8 rate it a hold.

The average volume for Wendy's has been 3.0 million shares per day over the past 30 days. Wendy's has a market cap of $3.8 billion and is part of the services sector and leisure industry. The stock has a beta of 0.65 and a short float of 5% with 4.41 days to cover. Shares are up 15.9% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Wendy's as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance 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 debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.05, which illustrates the ability to avoid short-term cash problems.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • WENDY'S CO's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WENDY'S CO increased its bottom line by earning $0.32 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($0.34 versus $0.32).
  • WEN, with its decline in revenue, slightly underperformed the industry average of 7.0%. Since the same quarter one year prior, revenues fell by 15.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • 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. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, WENDY'S CO's return on equity is below that of both the industry average and the S&P 500.

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