Today's Roof Leaker Stock Is ASML (ASML)

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

  • ASML has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $69.5 million.
  • ASML has traded 910,123 shares today.
  • ASML is trading at 1.66 times the normal volume for the stock at this time of day.
  • ASML 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 ASML:

ASML Holding N.V. engages in the development, production, marketing, sale, and servicing of advanced semiconductor equipment systems with a focus on lithography related systems worldwide. The stock currently has a dividend yield of 0.6%. Currently there are 5 analysts that rate ASML a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for ASML has been 1.1 million shares per day over the past 30 days. ASML has a market cap of $47.7 billion and is part of the technology sector and electronics industry. Shares are up 2.2% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates ASML as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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.
  • ASML HOLDING NV has improved earnings per share by 29.9% 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 year. We feel that this trend should continue. During the past fiscal year, ASML HOLDING NV increased its bottom line by earning $3.27 versus $3.21 in the prior year. This year, the market expects an improvement in earnings ($3.77 versus $3.27).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 26.0% when compared to the same quarter one year prior, rising from $343.19 million to $432.54 million.
  • ASML's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.34, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for ASML HOLDING NV is rather high; currently it is at 51.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 24.40% is above that of the industry average.

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