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

  • HW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $9.6 million.
  • HW has traded 94,706 shares today.
  • HW is trading at 3.98 times the normal volume for the stock at this time of day.
  • HW is trading at a new high 4.02% 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 HW:

Headwaters Incorporated, a building products company, provides products and services in the light and heavy building materials sectors primarily in the United States and Canada. It operates through three segments: Light Building Products, Heavy Construction Materials, and Energy Technology. HW has a PE ratio of 155. Currently there are 4 analysts that rate Headwaters a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Headwaters has been 567,200 shares per day over the past 30 days. Headwaters has a market cap of $1.4 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.81 and a short float of 2% with 3.38 days to cover. Shares are up 24% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Headwaters as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and poor profit margins.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 20.9%. Since the same quarter one year prior, revenues rose by 14.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, HW's share price has jumped by 46.95%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • Net operating cash flow has significantly decreased to -$31.59 million or 631.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Construction Materials industry. The net income has significantly decreased by 146.7% when compared to the same quarter one year ago, falling from -$10.32 million to -$25.46 million.

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