Transocean (RIG) Stock: Weak On High Volume 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 Transocean ( RIG) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Transocean as such a stock due to the following factors:

  • RIG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $331.6 million.
  • RIG has traded 2.0 million shares today.
  • RIG is trading at 2.32 times the normal volume for the stock at this time of day.
  • RIG is trading at a new low 3.03% 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 RIG:

Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company primarily offers deepwater and harsh environment drilling services. The stock currently has a dividend yield of 14.4%. Currently there are no analysts that rate Transocean a buy, 9 analysts rate it a sell, and 7 rate it a hold.

The average volume for Transocean has been 12.4 million shares per day over the past 30 days. Transocean has a market cap of $7.6 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.87 and a short float of 30.5% with 6.49 days to cover. Shares are up 13.5% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Transocean as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • 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 Energy Equipment & Services industry. The net income has significantly decreased by 205.9% when compared to the same quarter one year ago, falling from $456.00 million to -$483.00 million.
  • 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 Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 50.69%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 203.93% compared to the year-earlier 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.
  • TRANSOCEAN LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TRANSOCEAN LTD swung to a loss, reporting -$5.25 versus $3.85 in the prior year. This year, the market expects an improvement in earnings ($2.20 versus -$5.25).
  • RIG, with its decline in revenue, underperformed when compared the industry average of 1.6%. Since the same quarter one year prior, revenues fell by 12.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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