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

  • ARO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $3.2 million.
  • ARO has traded 79,715 shares today.
  • ARO is trading at 2.30 times the normal volume for the stock at this time of day.
  • ARO is trading at a new low 3.25% 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 ARO:

Aeropostale, Inc. operates as a specialty retailer of casual apparel and accessories for 14 to 17 year-old young women and men. It operates through two segments, Retail Stores and E-Commerce, and International Licensing. Currently there are no analysts that rate Aeropostale a buy, 3 analysts rate it a sell, and 12 rate it a hold.

The average volume for Aeropostale has been 1.8 million shares per day over the past 30 days. Aeropostale has a market cap of $250.9 million and is part of the services sector and retail industry. The stock has a beta of 3.93 and a short float of 21.7% with 11.97 days to cover. Shares are up 36.6% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Aeropostale as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.

Highlights from the ratings report include:
  • The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, AEROPOSTALE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $45.84 million or 16.82% 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.
  • ARO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 31.30%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for AEROPOSTALE INC is rather low; currently it is at 24.46%. Regardless of ARO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -2.27% trails the industry average.

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