Trade-Ideas: Watsco (WSO) Is Today's

Trade-Ideas LLC identified Watsco ( WSO) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Watsco as such a stock due to the following factors:

  • WSO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $28.3 million.
  • WSO has traded 343,356 shares today.
  • WSO traded in a range 212.6% of the normal price range with a price range of $4.66.
  • WSO traded above its daily resistance level (quality: 9 days, meaning that the stock is crossing a resistance level set by the last 9 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on WSO:

Watsco, Inc., together with its subsidiaries, distributes air conditioning, heating, and refrigeration equipment; and related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. The stock currently has a dividend yield of 2.4%. WSO has a PE ratio of 28. Currently there are 5 analysts that rate Watsco a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for Watsco has been 157,400 shares per day over the past 30 days. Watsco has a market cap of $5.0 billion and is part of the services sector and wholesale industry. The stock has a beta of 0.83 and a short float of 3.6% with 4.25 days to cover. Shares are up 20.7% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Watsco as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • WSO's revenue growth has slightly outpaced the industry average of 2.7%. Since the same quarter one year prior, revenues slightly increased by 5.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • WSO's debt-to-equity ratio is very low at 0.25 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 1.43, which illustrates the ability to avoid short-term cash problems.
  • WATSCO INC has improved earnings per share by 9.2% 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. During the past fiscal year, WATSCO INC increased its bottom line by earning $4.89 versus $4.33 in the prior year. This year, the market expects an improvement in earnings ($5.47 versus $4.89).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Trading Companies & Distributors industry average. The net income increased by 10.8% when compared to the same quarter one year prior, going from $23.05 million to $25.54 million.
  • Net operating cash flow has significantly increased by 349.37% to $41.85 million when compared to the same quarter last year. In addition, WATSCO INC has also vastly surpassed the industry average cash flow growth rate of -1.87%.

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