Roof Leaker To Watch: VF (VFC)

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 VF ( VFC) 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 VF as such a stock due to the following factors:

  • VFC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $151.3 million.
  • VFC has traded 463,494 shares today.
  • VFC is trading at 1.55 times the normal volume for the stock at this time of day.
  • VFC 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 VFC:

V.F. Corporation designs, manufactures, markets, and distributes branded lifestyle apparel, footwear, and accessories in the United States and Europe. The stock currently has a dividend yield of 1.8%. VFC has a PE ratio of 3. Currently there are 16 analysts that rate VF a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for VF has been 1.8 million shares per day over the past 30 days. VF has a market cap of $30.6 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.07 and a short float of 1% with 1.90 days to cover. Shares are down 4.1% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates VF as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.9%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • 49.02% is the gross profit margin for VF CORP which we consider to be strong. Regardless of VFC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VFC's net profit margin of 10.17% compares favorably to the industry average.
  • VF CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, VF CORP reported lower earnings of $2.39 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $2.39).
  • Despite currently having a low debt-to-equity ratio of 0.51, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.

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