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NetApp (NTAP) 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 NetApp ( NTAP) 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 NetApp as such a stock due to the following factors:

  • NTAP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $156.3 million.
  • NTAP has traded 5.4 million shares today.
  • NTAP traded in a range 209.4% of the normal price range with a price range of $1.51.
  • NTAP traded below its daily resistance level (quality: 251 days, meaning that the stock is crossing a resistance level set by the last 251 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.

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More details on NTAP:

NetApp, Inc. engages in design, manufacture, and marketing of networked storage solutions. The company supplies enterprise storage and data management software and hardware products and services. The stock currently has a dividend yield of 1.5%. NTAP has a PE ratio of 23.1. Currently there are 11 analysts that rate NetApp a buy, 2 analysts rate it a sell, and 12 rate it a hold.

The average volume for NetApp has been 4.1 million shares per day over the past 30 days. NetApp has a market cap of $13.2 billion and is part of the technology sector and computer hardware industry. The stock has a beta of 1.83 and a short float of 1.8% with 1.48 days to cover. Shares are down 3.2% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates NetApp as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Computers & Peripherals industry average. The net income increased by 21.5% when compared to the same quarter one year prior, going from $158.10 million to $192.10 million.
  • Although NTAP's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average. To add to this, NTAP has a quick ratio of 2.33, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for NETAPP INC is rather high; currently it is at 67.45%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, NTAP's net profit margin of 11.93% significantly trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, NETAPP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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