Strong On High Volume: K12 (LRN)

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 K12 ( LRN) as a strong on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified K12 as such a stock due to the following factors:

  • LRN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $3.1 million.
  • LRN has traded 56,016 shares today.
  • LRN is trading at 6.74 times the normal volume for the stock at this time of day.
  • LRN is trading at a new high 3.05% 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 LRN:

K12 Inc., a technology-based education company, offers proprietary curriculum, software systems, and educational services to facilitate individualized learning for students primarily in kindergarten through 12th grade. It manages virtual and blended public schools. LRN has a PE ratio of 15. Currently there is 1 analyst that rates K12 a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for K12 has been 227,600 shares per day over the past 30 days. K12 has a market cap of $521.8 million and is part of the services sector and diversified services industry. The stock has a beta of -0.37 and a short float of 3.2% with 4.30 days to cover. Shares are up 14.6% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates K12 as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Highlights from the ratings report include:
  • LRN's revenue growth has slightly outpaced the industry average of 0.5%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • LRN's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.08, which clearly demonstrates the ability to cover short-term cash needs.
  • K12 INC has improved earnings per share by 12.5% 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, K12 INC reported lower earnings of $0.50 versus $0.72 in the prior year. This year, the market expects an improvement in earnings ($0.70 versus $0.50).
  • Net operating cash flow has decreased to $38.83 million or 36.28% when compared to the same quarter last year. Despite a decrease in cash flow K12 INC is still fairing well by exceeding its industry average cash flow growth rate of -77.35%.
  • LRN'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 41.43%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, LRN is still more expensive than most of the other companies in its industry.

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