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Barbarian At The Gate: Fusion-io (FIO)

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 Fusion-io ( FIO) 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 Fusion-io as such a stock due to the following factors:

  • FIO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $33.2 million.
  • FIO has traded 2.9 million shares today.
  • FIO traded in a range 214.7% of the normal price range with a price range of $0.91.
  • FIO traded above its daily resistance level (quality: 68 days, meaning that the stock is crossing a resistance level set by the last 68 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 FIO:

Fusion-io, Inc. develops, markets, and sells storage memory platforms in the United States and internationally. Currently there are 3 analysts that rate Fusion-io a buy, 2 analysts rate it a sell, and 11 rate it a hold.

The average volume for Fusion-io has been 2.7 million shares per day over the past 30 days. Fusion-io has a market cap of $956.7 million and is part of the technology sector and computer hardware industry. The stock has a beta of 3.01 and a short float of 20.6% with 5.32 days to cover. Shares are up 5.7% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Fusion-io as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • 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 Computers & Peripherals industry. The net income has significantly decreased by 809.3% when compared to the same quarter one year ago, falling from $3.93 million to -$27.90 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 Computers & Peripherals industry and the overall market, FUSION-IO INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$17.15 million or 159.81% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.52%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 800.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • FUSION-IO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FUSION-IO INC reported poor results of -$0.39 versus -$0.08 in the prior year. This year, the market expects an improvement in earnings (-$0.30 versus -$0.39).

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