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Brocade Communications Systems (BRCD) Falls Further As It's 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 Brocade Communications Systems ( BRCD) 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 Brocade Communications Systems as such a stock due to the following factors:

  • BRCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $53.4 million.
  • BRCD has traded 2.3 million shares today.
  • BRCD traded in a range 209.5% of the normal price range with a price range of $0.55.
  • BRCD traded below its daily resistance level (quality: 1 day, meaning that the stock is crossing a resistance level set by the last 1 calendar day. 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.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in BRCD with the Ticky from Trade-Ideas. See the FREE profile for BRCD NOW at Trade-Ideas

More details on BRCD:

Brocade Communications Systems, Inc. provides Internet protocol based networking solutions and storage area networking (SAN) solutions to businesses and organizations worldwide. BRCD has a PE ratio of 12.7. Currently there are 4 analysts that rate Brocade Communications Systems a buy, 1 analyst rates it a sell, and 11 rate it a hold.

The average volume for Brocade Communications Systems has been 6.1 million shares per day over the past 30 days. Brocade Communications Systems has a market cap of $3.7 billion and is part of the technology sector and computer hardware industry. The stock has a beta of 0.88 and a short float of 1.7% with 1.04 days to cover. Shares are down 2.4% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Brocade Communications Systems as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. 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:

  • Powered by its strong earnings growth of 460.00% and other important driving factors, this stock has surged by 50.71% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • BROCADE COMMUNICATIONS SYS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. 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, BROCADE COMMUNICATIONS SYS increased its bottom line by earning $0.45 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($0.84 versus $0.45).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 480.5% when compared to the same quarter one year prior, rising from -$21.26 million to $80.88 million.
  • Although BRCD's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. To add to this, BRCD has a quick ratio of 2.48, which demonstrates the ability of the company to cover short-term liquidity needs.

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