Trade-Ideas: Headwaters (HW) Is Today's Strong And Under The Radar Stock

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 Headwaters ( HW) as a strong and under the radar candidate. In addition to specific proprietary factors, Trade-Ideas identified Headwaters as such a stock due to the following factors:

  • HW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $13.1 million.
  • HW is making at least a new 3-day high.
  • HW has a PE ratio of 162.
  • HW is mentioned 1.23 times per day on StockTwits.
  • HW has not yet been mentioned on StockTwits today.
  • HW is currently in the upper 20% of its 1-year range.
  • HW is in the upper 35% of its 20-day range.
  • HW is in the upper 45% of its 5-day range.
  • HW is currently trading above yesterday's high.

'Strong and Under the Radar' stocks tend to be worthwhile stocks to watch for a variety of factors including historical back testing and price action. Market technicians refer to such stocks as being in an accumulation phase before a mark-up and peak. Traders and hedge funds have frequently found that these types of stocks continue to build a solid price base and then ultimately spike higher and peak when others 'discover' how good the stock is performing. By leveraging the social discovery aspect of StockTwits we are highlighting stocks that don't currently receive much attention from retail investors, but we suspect may soon garner more attention.

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More details on HW:

Headwaters Incorporated, a building products company, provides products and services in the light and heavy building materials sectors primarily in the United States and Canada. It operates through three segments: Light Building Products, Heavy Construction Materials, and Energy Technology. HW has a PE ratio of 162. Currently there are 5 analysts that rate Headwaters a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Headwaters has been 648,400 shares per day over the past 30 days. Headwaters has a market cap of $1.4 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.37 and a short float of 2.5% with 1.67 days to cover. Shares are up 29.8% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Headwaters as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and generally higher debt management risk.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 21.8%. Since the same quarter one year prior, revenues rose by 14.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, HW's share price has jumped by 55.93%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • The gross profit margin for HEADWATERS INC is rather low; currently it is at 23.69%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -14.16% is significantly below that of the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Construction Materials industry. The net income has significantly decreased by 146.7% when compared to the same quarter one year ago, falling from -$10.32 million to -$25.46 million.

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