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Watch Out: Barbarians At The Gate For SolarWinds (SWI)

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 SolarWinds ( SWI) 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 SolarWinds as such a stock due to the following factors:

  • SWI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.6 million.
  • SWI has traded 697,407 shares today.
  • SWI traded in a range 223.1% of the normal price range with a price range of $1.39.
  • SWI traded above 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 '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 SWI with the Ticky from Trade-Ideas. See the FREE profile for SWI NOW at Trade-Ideas

More details on SWI:

SolarWinds, Inc. designs, develops, markets, sells, and supports enterprise-class information technology (IT) and infrastructure management software to IT professionals in various organizations worldwide. SWI has a PE ratio of 27.6. Currently there are 4 analysts that rate SolarWinds a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for SolarWinds has been 1.2 million shares per day over the past 30 days. SolarWinds has a market cap of $2.5 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 0.96 and a short float of 5.3% with 3.35 days to cover. Shares are down 37.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates SolarWinds as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 6.4%. Since the same quarter one year prior, revenues rose by 22.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SWI 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, SWI has a quick ratio of 1.76, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has increased to $42.00 million or 20.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.71%.
  • SOLARWINDS INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOLARWINDS INC increased its bottom line by earning $1.07 versus $0.84 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $1.07).
  • 45.46% is the gross profit margin for SOLARWINDS INC which we consider to be strong. Regardless of SWI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SWI's net profit margin of 25.97% compares favorably to the industry average.

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