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Barbarian At The Gate: Lam Research (LRCX)

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 Lam Research ( LRCX) 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 Lam Research as such a stock due to the following factors:

  • LRCX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $93.8 million.
  • LRCX has traded 924,833 shares today.
  • LRCX traded in a range 221.9% of the normal price range with a price range of $2.76.
  • LRCX traded above its daily resistance level (quality: 531 days, meaning that the stock is crossing a resistance level set by the last 531 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 LRCX:

Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device. The stock currently has a dividend yield of 1.3%. LRCX has a PE ratio of 19.9. Currently there are 13 analysts that rate Lam Research a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Lam Research has been 2.2 million shares per day over the past 30 days. Lam Research has a market cap of $9.1 billion and is part of the technology sector and electronics industry. The stock has a beta of 1.21 and a short float of 5.8% with 5.23 days to cover. Shares are up 2.6% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lam Research as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, attractive valuation levels and compelling growth in net income. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:

  • The revenue growth greatly exceeded the industry average of 4.1%. Since the same quarter one year prior, revenues rose by 45.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LRCX's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, LRCX has a quick ratio of 2.32, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 765.4% when compared to the same quarter one year prior, rising from $19.00 million to $164.40 million.

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