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

  • AREX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $8.0 million.
  • AREX has traded 189,956 shares today.
  • AREX is trading at 2.01 times the normal volume for the stock at this time of day.
  • AREX is trading at a new low 5.06% 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 AREX:

Approach Resources Inc., an independent energy company, focuses on the exploration, development, production, and acquisition of unconventional oil and gas reserves in the United States. The company's properties are primarily located in the Permian Basin in west Texas. AREX has a PE ratio of 6. Currently there are 3 analysts that rate Approach Resources a buy, 5 analysts rate it a sell, and 8 rate it a hold.

The average volume for Approach Resources has been 1.4 million shares per day over the past 30 days. Approach has a market cap of $302.2 million and is part of the basic materials sector and energy industry. The stock has a beta of 2.02 and a short float of 29.6% with 5.47 days to cover. Shares are up 17.5% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Approach 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, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.60, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The gross profit margin for APPROACH RESOURCES INC is currently very high, coming in at 70.05%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, AREX's net profit margin of -23.14% significantly underperformed when compared to 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 361.7% when compared to the same quarter one year ago, falling from $2.95 million to -$7.71 million.
  • 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, APPROACH 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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