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Trade-Ideas: Domtar (UFS) Is Today's "Barbarian At The Gate" Stock

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 or Stephanie Link.

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

  • UFS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $22.5 million.
  • UFS has traded 46,446 shares today.
  • UFS traded in a range 202.3% of the normal price range with a price range of $2.32.
  • UFS traded above its daily resistance level (quality: 14 days, meaning that the stock is crossing a resistance level set by the last 14 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.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in UFS with the Ticky from Trade-Ideas. See the FREE profile for UFS NOW at Trade-Ideas

More details on UFS:

Domtar Corporation designs, manufactures, markets, and distributes communications papers, specialty and packaging papers, and adult incontinence products worldwide. It operates in three segments: Pulp and Paper, Distribution, and Personal Care. The stock currently has a dividend yield of 3.3%. UFS has a PE ratio of 27.8. Currently there are 6 analysts that rate Domtar a buy, 2 analysts rate it a sell, and 3 rate it a hold.

The average volume for Domtar has been 296,400 shares per day over the past 30 days. Domtar has a market cap of $2.1 billion and is part of the consumer goods sector and consumer non-durables industry. Shares are down 20.6% year to date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Domtar as a hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the ratings report include:

  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, UFS has a quick ratio of 1.51, which demonstrates the ability of the company to cover short-term liquidity needs.
  • UFS, with its decline in revenue, underperformed when compared the industry average of 9.1%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of DOMTAR CORP has not done very well: it is down 11.80% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • The gross profit margin for DOMTAR CORP is rather low; currently it is at 17.53%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.50% trails that of the industry average.
  • Net operating cash flow has decreased to $120.00 million or 31.42% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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