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Watch Out: Barbarians At The Gate For Waters (WAT)

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 Waters ( WAT) 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 Waters as such a stock due to the following factors:

  • WAT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.5 million.
  • WAT has traded 55,190 shares today.
  • WAT traded in a range 227.7% of the normal price range with a price range of $3.43.
  • WAT traded above its daily resistance level (quality: 32 days, meaning that the stock is crossing a resistance level set by the last 32 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 WAT:

Waters Corporation operates as an analytical instrument manufacturer in the United States and internationally. WAT has a PE ratio of 21.4. Currently there are 4 analysts that rate Waters a buy, no analysts rate it a sell, and 9 rate it a hold.

The average volume for Waters has been 591,600 shares per day over the past 30 days. Waters has a market cap of $8.6 billion and is part of the health care sector and health services industry. The stock has a beta of 0.77 and a short float of 3.6% with 6.01 days to cover. Shares are up 1.5% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Waters as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • WAT's revenue growth trails the industry average of 19.2%. Since the same quarter one year prior, revenues slightly increased by 0.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.73, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with this, the company maintains a quick ratio of 3.86, which clearly demonstrates the ability to cover short-term cash needs.
  • WATERS CORP's earnings per share declined by 41.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WATERS CORP increased its bottom line by earning $5.21 versus $5.19 in the prior year. This year, the market expects an improvement in earnings ($5.30 versus $5.21).
  • The gross profit margin for WATERS CORP is rather high; currently it is at 60.51%. Regardless of WAT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WAT's net profit margin of 16.33% compares favorably to the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Life Sciences Tools & Services industry and the overall market, WATERS CORP's return on equity exceeds that of both the industry average and the S&P 500.

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