Kate Spade (KATE) Weak On High Volume

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

  • KATE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.9 million.
  • KATE has traded 457,029 shares today.
  • KATE is trading at 15.00 times the normal volume for the stock at this time of day.
  • KATE is trading at a new low 8.05% 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 KATE:

Kate Spade & Company, together with its subsidiaries, designs and markets apparel and accessories. The company operates in three segments: KATE SPADE North America, KATE SPADE International, and Adelington Design Group. KATE has a PE ratio of 54.5. Currently there are 8 analysts that rate Kate Spade a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Kate Spade has been 1.2 million shares per day over the past 30 days. Kate Spade has a market cap of $4.2 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.88 and a short float of 9.9% with 6.46 days to cover. Shares are up 2.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Kate Spade as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth, expanding profit margins and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, KATE SPADE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The revenue growth greatly exceeded the industry average of 10.0%. Since the same quarter one year prior, revenues rose by 44.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for KATE SPADE & CO is rather high; currently it is at 57.76%. Regardless of KATE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KATE's net profit margin of 31.74% significantly outperformed against the industry.
  • KATE SPADE & CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, KATE SPADE & CO turned its bottom line around by earning $0.59 versus -$0.29 in the prior year. For the next year, the market is expecting a contraction of 3.4% in earnings ($0.57 versus $0.59).
  • The debt-to-equity ratio is very high at 2.06 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, KATE's quick ratio is somewhat strong at 1.08, demonstrating the ability to handle short-term liquidity needs.

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