LM Ericsson Telephone Company (ERIC) Highlighted As Storm The Castle Stock

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 LM Ericsson Telephone Company ( ERIC) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified LM Ericsson Telephone Company as such a stock due to the following factors:

  • ERIC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $62.2 million.
  • ERIC has traded 694,300 shares today.
  • ERIC is trading at 19.38 times the normal volume for the stock at this time of day.
  • ERIC crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on ERIC:

Ericsson provides telecommunications equipment and services to mobile and fixed network operators worldwide. It operates in four segments: Networks, Global Services, Support Solutions, and ST-Ericsson. The stock currently has a dividend yield of 2.5%. ERIC has a PE ratio of 15.8. Currently there are 4 analysts that rate LM Ericsson Telephone Company a buy, 2 analysts rate it a sell, and 2 rate it a hold.

The average volume for LM Ericsson Telephone Company has been 3.6 million shares per day over the past 30 days. LM Ericsson Telephone has a market cap of $39.7 billion and is part of the technology sector and telecommunications industry. Shares are down 1.8% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates LM Ericsson Telephone Company as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Communications Equipment industry average. The net income increased by 16.4% when compared to the same quarter one year prior, going from $408.63 million to $475.70 million.
  • Although ERIC's debt-to-equity ratio of 0.19 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.49, which illustrates the ability to avoid short-term cash problems.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Net operating cash flow has significantly decreased to $237.50 million or 77.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 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 Communications Equipment industry and the overall market, ERICSSON's return on equity significantly trails that of both the industry average and the S&P 500.

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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