Today's Roof Leaker Stock Is SAP SE (SAP)

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 SAP SE ( SAP) 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 SAP SE as such a stock due to the following factors:

  • SAP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $57.1 million.
  • SAP has traded 829,347 shares today.
  • SAP is trading at 1.52 times the normal volume for the stock at this time of day.
  • SAP 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 SAP:

SAP SE provides application and analytics software and software-related services for enterprises worldwide. The stock currently has a dividend yield of 1.2%. SAP has a PE ratio of 2. Currently there are 5 analysts that rate SAP SE a buy, 1 analyst rates it a sell, and 7 rate it a hold.

The average volume for SAP SE has been 874,200 shares per day over the past 30 days. SAP SE has a market cap of $87.8 billion and is part of the technology sector and computer software & services industry. Shares are up 4.8% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

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

Highlights from the ratings report include:
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 5.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.47, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.02 is sturdy.
  • Net operating cash flow has decreased to $2,541.32 million or 21.57% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, SAP SE has marginally lower results.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Software industry. The net income has significantly decreased by 39.5% when compared to the same quarter one year ago, falling from $735.69 million to $444.68 million.

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