Sonic (SONC) Weak On High Volume

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

  • SONC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $35.6 million.
  • SONC has traded 1.8 million shares today.
  • SONC is trading at 28.06 times the normal volume for the stock at this time of day.
  • SONC is trading at a new low 11.00% 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 SONC:

Sonic Corp. operates and franchises a chain of quick-service drive-in restaurants in the United States. As of March 13, 2015, the company operated 3,517 restaurants in 44 states. It also leases signs and real estate. The stock currently has a dividend yield of 1.1%. SONC has a PE ratio of 35. Currently there are 7 analysts that rate Sonic a buy, 2 analysts rate it a sell, and 4 rate it a hold.

The average volume for Sonic has been 1.0 million shares per day over the past 30 days. Sonic has a market cap of $1.7 billion and is part of the services sector and leisure industry. The stock has a beta of 1.27 and a short float of 8.6% with 3.73 days to cover. Shares are up 25.7% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Sonic as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company's profit margins have been poor overall.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.4%. Since the same quarter one year prior, revenues rose by 15.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SONIC CORP 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SONIC CORP increased its bottom line by earning $0.85 versus $0.64 in the prior year. This year, the market expects an improvement in earnings ($1.09 versus $0.85).
  • 36.91% is the gross profit margin for SONIC CORP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.07% trails the industry average.
  • Powered by its strong earnings growth of 100.00% and other important driving factors, this stock has surged by 45.59% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.

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