Weak On High Volume: Ocean Rig UDW (ORIG)

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

  • ORIG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $14.3 million.
  • ORIG has traded 343,140 shares today.
  • ORIG is trading at 2.05 times the normal volume for the stock at this time of day.
  • ORIG is trading at a new low 3.09% 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 ORIG:

Ocean Rig UDW Inc., an offshore drilling contractor, provides oilfield services for offshore oil and gas exploration, development, and production drilling. It specializes in the ultra-deepwater and harsh-environment segment of the offshore drilling industry. The stock currently has a dividend yield of 11.1%. ORIG has a PE ratio of 3. Currently there are 3 analysts that rate Ocean Rig UDW a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Ocean Rig UDW has been 1.1 million shares per day over the past 30 days. Ocean Rig UDW has a market cap of $909.0 million and is part of the basic materials sector and energy industry. The stock has a beta of 1.32 and a short float of 9.3% with 2.95 days to cover. Shares are down 26.7% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Ocean Rig UDW as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and generally higher debt management risk.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.7%. Since the same quarter one year prior, revenues rose by 11.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 2771.5% when compared to the same quarter one year prior, rising from -$1.54 million to $41.14 million.
  • OCEAN RIG UDW INC reported significant earnings per share improvement 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, OCEAN RIG UDW INC increased its bottom line by earning $1.97 versus $0.48 in the prior year. For the next year, the market is expecting a contraction of 22.6% in earnings ($1.53 versus $1.97).
  • ORIG'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 60.81%, 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.
  • Currently the debt-to-equity ratio of 1.51 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, ORIG has managed to keep a strong quick ratio of 1.94, which demonstrates the ability to cover short-term cash needs.

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