CIT Group (CIT) Marked As Today's Roof Leaker Stock

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 CIT Group ( CIT) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified CIT Group as such a stock due to the following factors:

  • CIT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.2 million.
  • CIT has traded 895,802 shares today.
  • CIT is trading at 2.18 times the normal volume for the stock at this time of day.
  • CIT crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on CIT:

CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing and leasing products; and a suite of savings options in the United States. The stock currently has a dividend yield of 1.3%. CIT has a PE ratio of 8. Currently there are 7 analysts that rate CIT Group a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for CIT Group has been 1.3 million shares per day over the past 30 days. CIT Group has a market cap of $8.2 billion and is part of the financial sector and financial services industry. The stock has a beta of 1.36 and a short float of 4.2% with 7.31 days to cover. Shares are down 1.6% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates CIT Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, notable return on equity, increase in stock price during the past year and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • CIT's revenue growth has slightly outpaced the industry average of 0.0%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for CIT GROUP INC is rather high; currently it is at 64.77%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, CIT's net profit margin of 11.29% significantly trails the industry average.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, CIT GROUP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • After a year of stock price fluctuations, the net result is that CIT's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • CIT GROUP INC's earnings per share improvement from the most recent quarter was slightly positive. 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, CIT GROUP INC increased its bottom line by earning $5.73 versus $3.19 in the prior year. For the next year, the market is expecting a contraction of 48.6% in earnings ($2.94 versus $5.73).

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