Trade-Ideas: NRG Energy (NRG) Is Today's

Trade-Ideas LLC identified NRG Energy ( NRG) 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 NRG Energy as such a stock due to the following factors:

  • NRG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $54.1 million.
  • NRG has traded 1.3 million shares today.
  • NRG is trading at 1.71 times the normal volume for the stock at this time of day.
  • NRG 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 NRG:

NRG Energy, Inc., together with its subsidiaries, operates as a power company. The stock currently has a dividend yield of 0.8%. Currently there are 5 analysts that rate NRG Energy a buy, 1 analyst rates it a sell, and 1 rates it a hold.

The average volume for NRG Energy has been 5.1 million shares per day over the past 30 days. NRG Energy has a market cap of $4.4 billion and is part of the utilities sector and utilities industry. The stock has a beta of 1.14 and a short float of 6.5% with 4.38 days to cover. Shares are up 17.6% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates NRG Energy as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Independent Power Producers & Energy Traders industry. The net income increased by 168.3% when compared to the same quarter one year prior, rising from -$120.00 million to $82.00 million.
  • Net operating cash flow has significantly increased by 113.07% to $554.00 million when compared to the same quarter last year. In addition, NRG ENERGY INC has also vastly surpassed the industry average cash flow growth rate of -45.84%.
  • NRG ENERGY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NRG ENERGY INC swung to a loss, reporting -$20.31 versus $0.21 in the prior year. This year, the market expects an improvement in earnings ($1.22 versus -$20.31).
  • The debt-to-equity ratio is very high at 6.32 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, NRG maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, NRG ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.

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