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VeriFone Systems (PAY) Showing 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 VeriFone Systems ( PAY) 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 VeriFone Systems as such a stock due to the following factors:

  • PAY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $42.0 million.
  • PAY has traded 2.4 million shares today.
  • PAY traded in a range 205.4% of the normal price range with a price range of $1.24.
  • PAY traded below its daily resistance level (quality: 40 days, meaning that the stock is crossing a resistance level set by the last 40 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 PAY with the Ticky from Trade-Ideas. See the FREE profile for PAY NOW at Trade-Ideas

More details on PAY:

VeriFone Systems, Inc. designs, markets, and services electronic payment solutions worldwide. Currently there are 7 analysts that rate VeriFone Systems a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for VeriFone Systems has been 1.5 million shares per day over the past 30 days. VeriFone Systems has a market cap of $2.7 billion and is part of the consumer goods sector and consumer durables industry. The stock has a beta of 2.02 and a short float of 3.9% with 1.92 days to cover. Shares are down 17.8% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates VeriFone Systems as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:

  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 22.8%. Since the same quarter one year prior, revenues fell by 15.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • PAY's debt-to-equity ratio of 0.86 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.05 is sturdy.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the IT Services industry. The net income has significantly decreased by 105.0% when compared to the same quarter one year ago, falling from $37.70 million to -$1.88 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the IT Services industry and the overall market, VERIFONE SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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