Watch Out: Barbarians At The Gate For Radian Group (RDN)

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 Radian Group ( RDN) 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 Radian Group as such a stock due to the following factors:

  • RDN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $42.0 million.
  • RDN has traded 5.7 million shares today.
  • RDN traded in a range 201% of the normal price range with a price range of $0.77.
  • RDN traded above its daily resistance level (quality: 2 days, meaning that the stock is crossing a resistance level set by the last 2 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 RDN:

Radian Group Inc., through its subsidiaries, operates as a credit enhancement company in the United States. The company operates in two segments, Mortgage Insurance and Financial Guaranty. The stock currently has a dividend yield of 0.1%. Currently there are 4 analysts that rate Radian Group a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Radian Group has been 4.3 million shares per day over the past 30 days. Radian Group has a market cap of $2.5 billion and is part of the financial sector and insurance industry. The stock has a beta of 2.75 and a short float of 27.3% with 16.39 days to cover. Shares are up 127.7% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Radian Group as a hold. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • Compared to its closing price of one year ago, RDN's share price has jumped by 216.23%, 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 revenue fell significantly faster than the industry average of 100.3%. Since the same quarter one year prior, revenues slightly dropped by 6.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • RADIAN GROUP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, RADIAN GROUP INC swung to a loss, reporting -$3.41 versus $2.25 in the prior year. This year, the market expects an improvement in earnings (-$1.58 versus -$3.41).
  • The gross profit margin for RADIAN GROUP INC is currently extremely low, coming in at 12.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.18% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$276.07 million or 245.65% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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