Patterson Companies (PDCO) Showing Signs Of Being Water-Logged And Getting Wetter

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 Patterson Companies ( PDCO) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Patterson Companies as such a stock due to the following factors:

  • PDCO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $39.8 million.
  • PDCO has traded 1.6 million shares today.
  • PDCO traded in a range 210% of the normal price range with a price range of $1.72.
  • PDCO traded below its daily resistance level (quality: 1 day, meaning that the stock is crossing a resistance level set by the last 1 calendar day. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on PDCO:

Patterson Companies, Inc. distributes dental, veterinary, and rehabilitation supplies. The stock currently has a dividend yield of 1.9%. PDCO has a PE ratio of 22. Currently there are 3 analysts that rate Patterson Companies a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for Patterson Companies has been 892,200 shares per day over the past 30 days. Patterson Companies has a market cap of $4.9 billion and is part of the services sector and wholesale industry. The stock has a beta of 0.66 and a short float of 5.2% with 5.43 days to cover. Shares are down 1.4% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Patterson Companies as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, PDCO has a quick ratio of 1.64, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, PATTERSON COMPANIES INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has slightly increased to $59.69 million or 5.46% when compared to the same quarter last year. In addition, PATTERSON COMPANIES INC has also modestly surpassed the industry average cash flow growth rate of 1.32%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • PATTERSON COMPANIES INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PATTERSON COMPANIES INC reported lower earnings of $1.97 versus $2.03 in the prior year. This year, the market expects an improvement in earnings ($2.24 versus $1.97).

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