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Watch Out: Barbarians At The Gate For Dreamworks Animation SKG (DWA)

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 Dreamworks Animation SKG ( DWA) 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 Dreamworks Animation SKG as such a stock due to the following factors:

  • DWA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $23.0 million.
  • DWA has traded 289,183 shares today.
  • DWA traded in a range 200.2% of the normal price range with a price range of $1.79.
  • DWA traded above its daily resistance level (quality: 3 days, meaning that the stock is crossing a resistance level set by the last 3 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 DWA with the Ticky from Trade-Ideas. See the FREE profile for DWA NOW at Trade-Ideas

More details on DWA:

DreamWorks Animation SKG, Inc. is engaged in the development, production, and exploitation of animated films and their associated characters worldwide. The company opertaes through three segments: Feature Films, Television Series and Specials, and Consumer Products. DWA has a PE ratio of 42.6. Currently there are 2 analysts that rate Dreamworks Animation SKG a buy, 3 analysts rate it a sell, and 3 rate it a hold.

The average volume for Dreamworks Animation SKG has been 1.1 million shares per day over the past 30 days. Dreamworks Animation SKG has a market cap of $2.2 billion and is part of the services sector and media industry. The stock has a beta of 0.60 and a short float of 25.3% with 12.24 days to cover. Shares are down 24.3% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Dreamworks Animation SKG as a hold. 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 and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall.

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 Media industry. The net income increased by 120.8% when compared to the same quarter one year prior, rising from -$82.71 million to $17.19 million.
  • DWA's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • 41.65% is the gross profit margin for DREAMWORKS ANIMATION INC which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.41% trails the industry average.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Media industry and the overall market, DREAMWORKS ANIMATION 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 -$43.45 million or 34381.74% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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