Trade-Ideas: Arena Pharmaceuticals (ARNA) Is Today's

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 Arena Pharmaceuticals ( ARNA) 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 Arena Pharmaceuticals as such a stock due to the following factors:

  • ARNA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.6 million.
  • ARNA has traded 10.6 million shares today.
  • ARNA traded in a range 232.1% of the normal price range with a price range of $0.63.
  • ARNA traded above its daily resistance level (quality: 44 days, meaning that the stock is crossing a resistance level set by the last 44 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 ARNA:

Arena Pharmaceuticals, Inc., a biopharmaceutical company, engages in discovering, developing, and commercializing novel drugs that target G protein-coupled receptors in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases. Currently there are 3 analysts that rate Arena Pharmaceuticals a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for Arena Pharmaceuticals has been 4.8 million shares per day over the past 30 days. Arena has a market cap of $890.5 million and is part of the health care sector and drugs industry. The stock has a beta of -2.18 and a short float of 26.4% with 9.68 days to cover. Shares are down 54.8% year to date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Arena Pharmaceuticals as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Biotechnology industry. The net income has decreased by 10.8% when compared to the same quarter one year ago, dropping from -$15.52 million to -$17.20 million.
  • Looking at the price performance of ARNA's shares over the past 12 months, there is not much good news to report: the stock is down 43.65%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Biotechnology industry and the overall market, ARENA PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ARENA PHARMACEUTICALS INC's earnings per share declined by 14.3% 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, ARENA PHARMACEUTICALS INC continued to lose money by earning -$0.47 versus -$0.83 in the prior year. This year, the market expects an improvement in earnings (-$0.15 versus -$0.47).
  • ARNA's very impressive revenue growth greatly exceeded the industry average of 10.6%. Since the same quarter one year prior, revenues leaped by 140.9%. 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.
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