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Barbarian At The Gate: PetSmart (PETM)

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 PetSmart ( PETM) 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 PetSmart as such a stock due to the following factors:

  • PETM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $116.2 million.
  • PETM has traded 2.5 million shares today.
  • PETM traded in a range 215.6% of the normal price range with a price range of $2.43.
  • PETM traded above its daily resistance level (quality: 11 days, meaning that the stock is crossing a resistance level set by the last 11 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 PETM with the Ticky from Trade-Ideas. See the FREE profile for PETM NOW at Trade-Ideas

More details on PETM:

PetSmart, Inc., together with its subsidiaries, operates as a specialty retailer of products, services, and solutions for pets in the United States, Puerto Rico, and Canada. The stock currently has a dividend yield of 1.2%. PETM has a PE ratio of 16.6. Currently there are 2 analysts that rate PetSmart a buy, 1 analyst rates it a sell, and 15 rate it a hold.

The average volume for PetSmart has been 1.8 million shares per day over the past 30 days. PetSmart has a market cap of $6.8 billion and is part of the services sector and specialty retail industry. The stock has a beta of 0.44 and a short float of 11.5% with 6.97 days to cover. Shares are down 8.9% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates PetSmart as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, growth in earnings per share and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • 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 Specialty Retail industry and the overall market, PETSMART INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • PETSMART INC's earnings per share improvement from the most recent quarter was slightly positive. 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, PETSMART INC increased its bottom line by earning $4.03 versus $3.55 in the prior year. This year, the market expects an improvement in earnings ($4.47 versus $4.03).
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.2%. Since the same quarter one year prior, revenues slightly dropped by 4.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.47, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that PETM's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.54 is low and demonstrates weak liquidity.

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