Concho Resources (CXO) Spotted As Roof Leaker Today

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 Concho Resources ( CXO) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Concho Resources as such a stock due to the following factors:

  • CXO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $172.1 million.
  • CXO has traded 106,454 shares today.
  • CXO is trading at 1.52 times the normal volume for the stock at this time of day.
  • CXO crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on CXO:

Concho Resources Inc., an independent oil and natural gas company, acquires, develops, and explores for oil and natural gas properties in the Unites States. The company's principal operating areas are located in the Permian Basin of southeast New Mexico and West Texas. CXO has a PE ratio of 29.5. Currently there are 16 analysts that rate Concho Resources a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Concho Resources has been 1.5 million shares per day over the past 30 days. Concho has a market cap of $14.4 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.14 and a short float of 6.3% with 4.11 days to cover. Shares are up 20.4% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Concho Resources as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and disappointing return on equity.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.56, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that CXO's debt-to-equity ratio is low, the quick ratio, which is currently 0.51, displays a potential problem in covering short-term cash needs.
  • The gross profit margin for CONCHO RESOURCES INC is rather high; currently it is at 69.64%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.81% trails the industry average.
  • CXO, with its decline in revenue, slightly underperformed the industry average of 35.2%. Since the same quarter one year prior, revenues fell by 37.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has significantly decreased to $126.25 million or 73.47% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CONCHO RESOURCES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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