Cavium (CAVM) Falls Further As It's Water-Logged And Getting Wetter

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 Cavium ( CAVM) 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 Cavium as such a stock due to the following factors:

  • CAVM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $38.1 million.
  • CAVM has traded 272,085 shares today.
  • CAVM traded in a range 224.1% of the normal price range with a price range of $3.76.
  • CAVM traded below 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 '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 CAVM:

Cavium, Inc. designs, develops, and markets semiconductor processors for intelligent and secure networks. The company operates through Semiconductor Products, and Software and Services segments. Currently there are 10 analysts that rate Cavium a buy, 1 analyst rates it a sell, and 4 rate it a hold.

The average volume for Cavium has been 737,900 shares per day over the past 30 days. Cavium has a market cap of $2.4 billion and is part of the technology sector and electronics industry. The stock has a beta of 1.61 and a short float of 9.2% with 5.35 days to cover. Shares are up 30.1% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Cavium as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues rose by 22.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CAVM's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, CAVM has a quick ratio of 2.36, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for CAVIUM INC is currently very high, coming in at 82.07%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, CAVM's net profit margin of 0.23% significantly trails the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
  • 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 Semiconductors & Semiconductor Equipment industry and the overall market, CAVIUM INC'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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