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Barbarian At The Gate: Ares Capital Corporation (ARCC)

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 Ares Capital Corporation (ARCC) 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 Ares Capital Corporation as such a stock due to the following factors:

  • ARCC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $41.9 million.
  • ARCC has traded 2.9 million shares today.
  • ARCC traded in a range 215.6% of the normal price range with a price range of $0.39.
  • ARCC traded above its daily resistance level (quality: 77 days, meaning that the stock is crossing a resistance level set by the last 77 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 ARCC:

Ares Capital Corporation specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. The stock currently has a dividend yield of 8.9%. ARCC has a PE ratio of 9.0. Currently there are 7 analysts that rate Ares Capital Corporation a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Ares Capital Corporation has been 2.1 million shares per day over the past 30 days. Ares has a market cap of $5.1 billion and is part of the financial sector and financial services industry. Shares are down 3.7% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Ares Capital Corporation as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 22.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 Capital Markets industry average. The net income increased by 45.6% when compared to the same quarter one year prior, rising from $80.34 million to $116.99 million.
  • The gross profit margin for ARES CAPITAL CORP is currently very high, coming in at 71.00%. Regardless of ARCC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ARCC's net profit margin of 48.80% significantly outperformed against the industry.
  • ARES CAPITAL CORP has improved earnings per share by 21.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ARES CAPITAL CORP reported lower earnings of $1.81 versus $2.20 in the prior year. For the next year, the market is expecting a contraction of 13.5% in earnings ($1.57 versus $1.81).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Capital Markets industry and the overall market, ARES CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.

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