A loss of 38.26% year to date for shares of Teva Pharmaceutical Industries Limited (TEVA) tells a story of unusual bearish trading activity accompanying the move. It's bearish activity because the shares are declining in price alongside an increase in volumes. The main criteria we look for when betting on upside in a stock include improving fundamentals, leading technicals and bullish trading activity in the shares – all of which Teva Pharmaceutical is missing.
I'll go into the fundamental picture later, but for us, the true tell on the near-term trajectory of a stock lies in its trading activity. Throughout 2019, Teva Pharmaceutical shares have decreased in price alongside an increase in volume on many occasions. This can be indicative of smart money selling shares. The bottom line here is that the manner in which a stock trades can sometimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.
For Mapsignals, the strongest indicator of negative price momentum is obtained by measuring potential institutional selling in the shares. In 2019, Teva Pharmaceutical has logged 11 of these rare signals (see chart below). When we see continual bearish activity in the shares alongside troubling forward fundamentals, we take notice. This indicates that, over time, there is a lack of demand for shares. When this occurs alongside a weakening fundamental outlook for the company, it can lead to further declines in the stock price.
Just to show you graphically what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Teva Pharmaceutical stock has made over the past year. As you can see, the trend indicates a low demand for shares starting in 2019. What we have found over time is that unusual trading signals tend to reoccur. You can see the string of red bars below that highlight potential institutional selling:
Mapsignals' goal is to identify tomorrow’s top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
The opposite is true when companies flag negative criteria, which is the current situation for Teva Pharmaceutical. The following are three technical areas of concern for shares of Teva Pharmaceutical:
- YTD underperformance vs. market: -50.85% vs. SPDR S&P 500 ETF (SPY)
- YTD underperformance vs. pharmaceutical sector: -41.57% vs. SPDR S&P Pharmaceuticals ETF (XPH)
- Bearish unusual trading signals
Now we take it a step further and rank each stock showing this activity. Below you can see the historical times when Teva Pharmaceutical stock made potential sell signals for Mapsignals over the past year. These are the lowest-rated signals in our stock universe:
On top of a poor technical picture, one should also look under the hood to see if the fundamental picture supports a negative outlook for an investment. As you can see in the latest quarterly results, Teva Pharmaceutical has had a troubling fundamental picture:
- Q1 2019 year-over-year (YoY) revenue growth rate: -15%
- Q1 2019 earnings loss: -$0.10 per share
Teva Pharmaceutical is underperforming technically and lacks strong fundamentals while showing bearish institutional momentum in 2019. Until this overall picture changes, shares could remain under pressure.
The Bottom Line
Teva Pharmaceutical stock does not meet the current criteria for a long investment. Given the weak earnings, slowing revenues and multiple unusual distribution signals, this stock should face headwinds until the fundamental and technical picture brightens.
Disclosure: The author holds no position in TEVA at the time of publication.