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Watch Out: Barbarians At The Gate For Adtran (ADTN)

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 Adtran (ADTN) 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 Adtran as such a stock due to the following factors:

  • ADTN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $23.4 million.
  • ADTN has traded 582,164 shares today.
  • ADTN traded in a range 204.8% of the normal price range with a price range of $1.70.
  • ADTN traded above its daily resistance level (quality: 12 days, meaning that the stock is crossing a resistance level set by the last 12 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.

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More details on ADTN:

ADTRAN, Inc. designs, manufactures, markets, services, and supports communications network solutions that enable voice, data, video, and Internet communications across various network infrastructures in the United States and internationally. The stock currently has a dividend yield of 1.4%. ADTN has a PE ratio of 39.4. Currently there is 1 analyst that rates Adtran a buy, 3 analysts rate it a sell, and 6 rate it a hold.

The average volume for Adtran has been 521,600 shares per day over the past 30 days. Adtran has a market cap of $1.4 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 1.55 and a short float of 10.7% with 3.44 days to cover. Shares are down 8% year-to-date as of the close of trading on Friday.

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

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Adtran as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and feeble growth in the company's earnings per share.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 74.8% when compared to the same quarter one year prior, rising from $9.27 million to $16.21 million.
  • ADTN's revenue growth trails the industry average of 22.4%. Since the same quarter one year prior, revenues slightly increased by 9.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 48.59% is the gross profit margin for ADTRAN INC which we consider to be strong. Regardless of ADTN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.13% trails the industry average.
  • Net operating cash flow has decreased to $22.56 million or 18.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Communications Equipment industry and the overall market, ADTRAN INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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