Autodesk (ADSK) Showing Signs Of Being A Roof Leaker

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 Autodesk ( ADSK) 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 Autodesk as such a stock due to the following factors:

  • ADSK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $99.8 million.
  • ADSK has traded 2.3 million shares today.
  • ADSK is trading at 2.97 times the normal volume for the stock at this time of day.
  • ADSK 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 ADSK:

Autodesk, Inc. operates as a design software and services company worldwide. ADSK has a PE ratio of 168. Currently there are 9 analysts that rate Autodesk a buy, 1 analyst rates it a sell, and 2 rate it a hold.

The average volume for Autodesk has been 2.1 million shares per day over the past 30 days. Autodesk has a market cap of $13.4 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.93 and a short float of 1.4% with 2.40 days to cover. Shares are down 2.8% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Autodesk as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 13.3%. 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.
  • Net operating cash flow has increased to $257.20 million or 40.16% when compared to the same quarter last year. In addition, AUTODESK INC has also vastly surpassed the industry average cash flow growth rate of -15.51%.
  • Despite currently having a low debt-to-equity ratio of 0.34, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that ADSK's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.78 is high and demonstrates strong liquidity.
  • 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 Software industry. The net income has significantly decreased by 78.7% when compared to the same quarter one year ago, falling from $53.90 million to $11.50 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, AUTODESK INC's return on equity significantly trails that of both the industry average and the S&P 500.

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