Omnicom Group (OMC) Spotted As Roof Leaker Today

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 Omnicom Group ( OMC) 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 Omnicom Group as such a stock due to the following factors:

  • OMC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $97.0 million.
  • OMC has traded 1.9 million shares today.
  • OMC is trading at 1.76 times the normal volume for the stock at this time of day.
  • OMC 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 OMC:

Omnicom Group Inc., together with its subsidiaries, operates as an advertising, marketing, and corporate communications services company in the Americas, Europe, the Middle East, Africa, and the Asia pacific. The stock currently has a dividend yield of 2.6%. OMC has a PE ratio of 18. Currently there are 4 analysts that rate Omnicom Group a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Omnicom Group has been 1.2 million shares per day over the past 30 days. Omnicom Group has a market cap of $18.5 billion and is part of the services sector and media industry. The stock has a beta of 1.32 and a short float of 5.4% with 11.00 days to cover. Shares are down 2.7% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Omnicom Group 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, increase in net income, notable return on equity and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
  • OMNICOM GROUP 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, OMNICOM GROUP increased its bottom line by earning $4.25 versus $3.72 in the prior year. This year, the market expects an improvement in earnings ($4.33 versus $4.25).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Media industry average. The net income increased by 1.8% when compared to the same quarter one year prior, going from $205.50 million to $209.10 million.
  • 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 Media industry and the overall market, OMNICOM GROUP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to -$238.00 million or 44.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 15.28%.

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