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Barbarian At The Gate: Brocade Communications Systems (BRCD)

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 Brocade Communications Systems ( BRCD) 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 Brocade Communications Systems as such a stock due to the following factors:

  • BRCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $33.7 million.
  • BRCD has traded 6.6 million shares today.
  • BRCD traded in a range 206.2% of the normal price range with a price range of $0.36.
  • BRCD traded above its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 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 BRCD with the Ticky from Trade-Ideas. See the FREE profile for BRCD NOW at Trade-Ideas

More details on BRCD:

Brocade Communications Systems, Inc. engages in the supply of Internet protocol based Ethernet networking solutions and storage area networking (SAN) solutions to businesses and organizations worldwide. BRCD has a PE ratio of 18.6. Currently there are 3 analysts that rate Brocade Communications Systems a buy, 2 analysts rate it a sell, and 11 rate it a hold.

The average volume for Brocade Communications Systems has been 6.1 million shares per day over the past 30 days. Brocade Communications Systems has a market cap of $3.7 billion and is part of the technology sector and computer hardware industry. The stock has a beta of 1.02 and a short float of 1.7% with 1.85 days to cover. Shares are up 54.8% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Brocade Communications Systems as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • Powered by its strong earnings growth of 27.27% and other important driving factors, this stock has surged by 52.94% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, BRCD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • BROCADE COMMUNICATIONS SYS has improved earnings per share by 27.3% in the most recent quarter compared to the same quarter a year ago. 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, BROCADE COMMUNICATIONS SYS increased its bottom line by earning $0.45 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($0.80 versus $0.45).
  • Although BRCD's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. To add to this, BRCD has a quick ratio of 2.21, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for BROCADE COMMUNICATIONS SYS is currently very high, coming in at 70.62%. 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 11.49% trails the industry average.

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