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Trade-Ideas: Discovery Communications (DISCK) 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 Discovery Communications ( DISCK) 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 Discovery Communications as such a stock due to the following factors:

  • DISCK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $23.7 million.
  • DISCK has traded 266,434 shares today.
  • DISCK traded in a range 214.1% of the normal price range with a price range of $2.48.
  • DISCK traded above its daily resistance level (quality: 58 days, meaning that the stock is crossing a resistance level set by the last 58 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 DISCK:

Discovery Communications, Inc. operates as a non fiction media company worldwide. It operates through three segments: U.S. Networks, International Networks, and Education. The company provides original and purchased content across various distribution platforms. DISCK has a PE ratio of 27.8. Currently there is 1 analyst that rates Discovery Communications a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Discovery Communications has been 340,600 shares per day over the past 30 days. Discovery has a market cap of $6.5 billion and is part of the services sector and media industry. The stock has a beta of 1.11 and a short float of 0.6% with 1.89 days to cover. Shares are up 25.2% year to date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Discovery Communications as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. 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:

  • The revenue growth greatly exceeded the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 30.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 140.42% to $339.00 million when compared to the same quarter last year. In addition, DISCOVERY COMMUNICATIONS INC has also vastly surpassed the industry average cash flow growth rate of -15.59%.
  • The gross profit margin for DISCOVERY COMMUNICATIONS INC is currently very high, coming in at 91.41%. Regardless of DISCK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DISCK's net profit margin of 20.44% significantly outperformed against the industry.
  • Even though the current debt-to-equity ratio is 1.03, it is still below the industry average, suggesting that this level of debt is acceptable within the Media industry. Despite the fact that DISCK's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.82 is high and demonstrates strong liquidity.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 34.46% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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