Today's Weak On High Volume Stock: Meritor (MTOR)

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

  • MTOR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $18.8 million.
  • MTOR has traded 107,283 shares today.
  • MTOR is trading at 2.08 times the normal volume for the stock at this time of day.
  • MTOR is trading at a new low 3.05% 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 MTOR:

Meritor, Inc. designs, develops, manufactures, sells, markets, distributes, services, and supports integrated systems, modules, and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation, and industrial sectors. MTOR has a PE ratio of 4. Currently there is 1 analyst that rates Meritor a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Meritor has been 1.1 million shares per day over the past 30 days. Meritor has a market cap of $1.4 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 2.11 and a short float of 8% with 6.21 days to cover. Shares are down 4.9% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Meritor as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Machinery industry. The net income increased by 4200.0% when compared to the same quarter one year prior, rising from $1.00 million to $43.00 million.
  • Net operating cash flow has significantly increased by 72.72% to $38.00 million when compared to the same quarter last year. In addition, MERITOR INC has also vastly surpassed the industry average cash flow growth rate of -31.43%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.5%. Since the same quarter one year prior, revenues slightly dropped by 9.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • In its most recent trading session, MTOR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The gross profit margin for MERITOR INC is rather low; currently it is at 15.28%. Regardless of MTOR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 4.97% trails the industry average.

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