Roof Leaker To Watch: TJX Companies (TJX)

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 TJX Companies ( TJX) 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 TJX Companies as such a stock due to the following factors:

  • TJX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $218.9 million.
  • TJX has traded 2.1 million shares today.
  • TJX is trading at 1.64 times the normal volume for the stock at this time of day.
  • TJX 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 TJX:

The TJX Companies, Inc. operates as an off-price apparel and home fashions retailer in the United States and internationally. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX Europe. The stock currently has a dividend yield of 1.3%. TJX has a PE ratio of 2. Currently there are 11 analysts that rate TJX Companies a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for TJX Companies has been 3.2 million shares per day over the past 30 days. TJX Companies has a market cap of $45.4 billion and is part of the services sector and retail industry. The stock has a beta of 0.93 and a short float of 0.9% with 1.78 days to cover. Shares are down 3.8% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates TJX Companies as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 5.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels.
  • 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 Specialty Retail industry and the overall market, TJX COMPANIES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. 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.
  • TJX COMPANIES INC has improved earnings per share by 7.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TJX COMPANIES INC increased its bottom line by earning $3.15 versus $2.95 in the prior year. This year, the market expects an improvement in earnings ($3.29 versus $3.15).

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