Trade-Ideas: China Distance Education Holdings (DL) Is Today's Weak On High Relative Volume 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 China Distance Education Holdings ( DL) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified China Distance Education Holdings as such a stock due to the following factors:

  • DL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $3.2 million.
  • DL has traded 78,170 shares today.
  • DL is trading at 11.26 times the normal volume for the stock at this time of day.
  • DL is trading at a new low 3.31% 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 DL:

China Distance Education Holdings Limited provides online and offline education services, and sells related products in the People's Republic of China. The stock currently has a dividend yield of 3.9%. DL has a PE ratio of 31. Currently there are 3 analysts that rate China Distance Education Holdings a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for China Distance Education Holdings has been 94,000 shares per day over the past 30 days. China Distance has a market cap of $737.3 million and is part of the services sector and diversified services industry. Shares are up 14.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates China Distance Education Holdings as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 22.4%. 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.
  • DL's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, DL has a quick ratio of 1.53, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Consumer Services industry and the overall market, CHINA DISTANCE EDUCATION-ADR's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for CHINA DISTANCE EDUCATION-ADR is rather high; currently it is at 50.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 5.48% is above that of the industry average.
  • CHINA DISTANCE EDUCATION-ADR's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHINA DISTANCE EDUCATION-ADR increased its bottom line by earning $0.67 versus $0.39 in the prior year. This year, the market expects an improvement in earnings ($0.84 versus $0.67).

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