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Water-Logged And Getting Wetter Stock Of The Day: Forest Laboratories (FRX)

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 Forest Laboratories ( FRX) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Forest Laboratories as such a stock due to the following factors:

  • FRX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $68.8 million.
  • FRX has traded 1.1 million shares today.
  • FRX traded in a range 233.3% of the normal price range with a price range of $1.33.
  • FRX traded below its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' 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 negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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

More details on FRX:

Forest Laboratories, Inc. develops, manufactures, and sells branded forms of ethical drug products primarily in the United States and Europe. Currently there are 7 analysts that rate Forest Laboratories a buy, 1 analyst rates it a sell, and 9 rate it a hold.

The average volume for Forest Laboratories has been 1.1 million shares per day over the past 30 days. Forest has a market cap of $11.6 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.57 and a short float of 1.8% with 2.22 days to cover. Shares are up 22.7% year to date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Forest Laboratories as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • Compared to its closing price of one year ago, FRX's share price has jumped by 26.68%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FRX should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 2.2%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • FRX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, FRX has a quick ratio of 2.15, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for FOREST LABORATORIES is currently very high, coming in at 85.61%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, FRX's net profit margin of 2.80% significantly trails the industry average.
  • FOREST LABORATORIES has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, FOREST LABORATORIES swung to a loss, reporting -$0.12 versus $3.57 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus -$0.12).

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