Water-Logged And Getting Wetter: NetSuite (N)

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 NetSuite ( N) 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 NetSuite as such a stock due to the following factors:

  • N has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $47.5 million.
  • N has traded 74,759 shares today.
  • N traded in a range 237.8% of the normal price range with a price range of $5.34.
  • N traded below its daily resistance level (quality: 3 days, meaning that the stock is crossing a resistance level set by the last 3 calendar days. 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.

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More details on N:

NetSuite Inc. provides cloud-based financials/enterprise resource planning (ERP) software suites in the United States and internationally. Currently there are 6 analysts that rate NetSuite a buy, no analysts rate it a sell, and 8 rate it a hold.

The average volume for NetSuite has been 392,800 shares per day over the past 30 days. NetSuite has a market cap of $7.2 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.70 and a short float of 4.2% with 2.75 days to cover. Shares are up 42.8% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates NetSuite as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 33.9%. 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.
  • Compared to its closing price of one year ago, N's share price has jumped by 59.41%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The gross profit margin for NETSUITE INC is currently very high, coming in at 72.63%. Regardless of N's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, N's net profit margin of -15.69% significantly underperformed when compared to the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, NETSUITE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 110.1% when compared to the same quarter one year ago, falling from -$7.98 million to -$16.77 million.

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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