Trade-Ideas: Rowan Companies (RDC) Is Today's Strong 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 Rowan Companies ( RDC) as a strong on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Rowan Companies as such a stock due to the following factors:

  • RDC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $68.4 million.
  • RDC has traded 358,455 shares today.
  • RDC is trading at 3.38 times the normal volume for the stock at this time of day.
  • RDC is trading at a new high 3.03% above yesterday's close.

'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into 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. 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 RDC:

Rowan Companies plc provides offshore oil and gas contract drilling services. It operates a fleet of 30 self-elevating mobile offshore jack-up drilling units, as well as 3 ultra-deepwater drill ships. The stock currently has a dividend yield of 1.9%. Currently there are 5 analysts that rate Rowan Companies a buy, 2 analysts rate it a sell, and 8 rate it a hold.

The average volume for Rowan Companies has been 3.3 million shares per day over the past 30 days. Rowan Companies has a market cap of $2.7 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.38 and a short float of 6.2% with 2.69 days to cover. Shares are down 9.5% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Rowan Companies as a hold. 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 and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 1.7%. Since the same quarter one year prior, revenues rose by 44.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.58, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, RDC has a quick ratio of 1.76, which demonstrates the ability of the company to cover short-term liquidity needs.
  • ROWAN COMPANIES PLC reported significant earnings per share improvement 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, ROWAN COMPANIES PLC swung to a loss, reporting -$0.96 versus $2.04 in the prior year. This year, the market expects an improvement in earnings ($2.70 versus -$0.96).
  • RDC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 28.60%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Energy Equipment & Services industry and the overall market, ROWAN COMPANIES PLC's return on equity significantly trails that of both the industry average and the S&P 500.

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