Watch Out: Barbarians At The Gate For International Business Machines (IBM)

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 International Business Machines ( IBM) 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 International Business Machines as such a stock due to the following factors:

  • IBM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $830.0 million.
  • IBM has traded 5.6 million shares today.
  • IBM traded in a range 230.8% of the normal price range with a price range of $5.04.
  • IBM traded above its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 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 IBM:

International Business Machines Corporation provides information technology (IT) products and services worldwide. The stock currently has a dividend yield of 2.1%. IBM has a PE ratio of 12.3. Currently there are 5 analysts that rate International Business Machines a buy, no analysts rate it a sell, and 14 rate it a hold.

The average volume for International Business Machines has been 5.0 million shares per day over the past 30 days. International Business Machines has a market cap of $192.3 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 0.63 and a short float of 2.5% with 5.88 days to cover. Shares are down 8.5% year-to-date as of the close of trading on Wednesday.

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

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates International Business Machines as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • INTL BUSINESS MACHINES CORP has improved earnings per share by 10.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $14.41 versus $13.12 in the prior year. This year, the market expects an improvement in earnings ($16.90 versus $14.41).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the IT Services industry and the overall market, INTL BUSINESS MACHINES CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 53.54%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 17.03% trails the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 5.7% when compared to the same quarter one year prior, going from $3,823.00 million to $4,041.00 million.
  • Despite the weak revenue results, IBM has outperformed against the industry average of 22.8%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. The declining revenue has not hurt the company's bottom line, with increasing 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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