DepoMed (DEPO) Showing Signs Of Perilous Reversal Today

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 DepoMed ( DEPO) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified DepoMed as such a stock due to the following factors:

  • DEPO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $25.0 million.
  • DEPO has traded 1.3 million shares today.
  • DEPO is down 3% today.
  • DEPO was up 5.3% yesterday.

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More details on DEPO:

Depomed, Inc., a specialty pharmaceutical company, develops products for pain and other central nervous system conditions in the United States. DEPO has a PE ratio of 13. Currently there are 5 analysts that rate DepoMed a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for DepoMed has been 1.5 million shares per day over the past 30 days. DepoMed has a market cap of $1.3 billion and is part of the health care sector and drugs industry. The stock has a beta of 1.42 and a short float of 23.7% with 11.36 days to cover. Shares are up 45.6% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates DepoMed as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Compared to its closing price of one year ago, DEPO's share price has jumped by 66.66%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DEPO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The debt-to-equity ratio is somewhat low, currently at 0.65, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with this, the company maintains a quick ratio of 9.54, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 96.18% to -$2.49 million when compared to the same quarter last year. In addition, DEPOMED INC has also vastly surpassed the industry average cash flow growth rate of -24.06%.
  • DEPO, with its very weak revenue results, has greatly underperformed against the industry average of 2.1%. Since the same quarter one year prior, revenues plummeted by 57.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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