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Avago Technologies (AVGO) Shows Signs Of Being Water-Logged And Getting Wetter

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 Avago Technologies (AVGO) 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 Avago Technologies as such a stock due to the following factors:

  • AVGO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $76.3 million.
  • AVGO has traded 980,227 shares today.
  • AVGO traded in a range 207.7% of the normal price range with a price range of $2.00.
  • AVGO traded below its daily resistance level (quality: 30 days, meaning that the stock is crossing a resistance level set by the last 30 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.

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More details on AVGO:

Avago Technologies Limited engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products. The stock currently has a dividend yield of 2.1%. AVGO has a PE ratio of 20.6. Currently there are 10 analysts that rate Avago Technologies a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Avago Technologies has been 2.5 million shares per day over the past 30 days. The stock has a beta of 0.95 and a short float of 1.4% with 2.33 days to cover. Shares are up 39.7% year to date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

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

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 6.3%. 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.
  • AVGO's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.23, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has slightly increased to $137.00 million or 7.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -30.50%.
  • AVAGO TECHNOLOGIES LTD' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, AVAGO TECHNOLOGIES LTD increased its bottom line by earning $2.26 versus $2.20 in the prior year. This year, the market expects an improvement in earnings ($2.82 versus $2.26).
  • The gross profit margin for AVAGO TECHNOLOGIES LTD is rather high; currently it is at 54.50%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 22.04% is in-line with the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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