Today's Weak On High Volume Stock: Hovnanian (HOV)

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

  • HOV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $6.0 million.
  • HOV has traded 1.7 million shares today.
  • HOV is trading at 14.87 times the normal volume for the stock at this time of day.
  • HOV is trading at a new low 10.09% 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 HOV:

Hovnanian Enterprises, Inc. designs, constructs, markets, and sells residential homes in the United States. It constructs single-family detached homes, attached townhomes and condominiums, urban infill, and active adult homes. HOV has a PE ratio of 2. Currently there is 1 analyst that rates Hovnanian a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for Hovnanian has been 2.0 million shares per day over the past 30 days. Hovnanian has a market cap of $416.6 million and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.84 and a short float of 15.2% with 8.56 days to cover. Shares are down 23.2% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Hovnanian as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The gross profit margin for HOVNANIAN ENTRPRS INC is rather low; currently it is at 18.10%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.22% trails that of the industry average.
  • Net operating cash flow has decreased to -$195.62 million or 49.26% when compared to the same quarter last year. Despite a decrease in cash flow HOVNANIAN ENTRPRS INC is still fairing well by exceeding its industry average cash flow growth rate of -79.54%.
  • HOV'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 28.80%, 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Household Durables industry average, but is greater than that of the S&P 500. The net income increased by 41.4% when compared to the same quarter one year prior, rising from -$24.52 million to -$14.38 million.
  • HOVNANIAN ENTRPRS INC has improved earnings per share by 41.2% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, HOVNANIAN ENTRPRS INC increased its bottom line by earning $1.84 versus $0.20 in the prior year. For the next year, the market is expecting a contraction of 98.4% in earnings ($0.03 versus $1.84).

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