Watch Out: Barbarians At The Gate For PepsiCo (PEP)

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 PepsiCo ( PEP) 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 PepsiCo as such a stock due to the following factors:

  • PEP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $405.2 million.
  • PEP has traded 4.7 million shares today.
  • PEP traded in a range 221.4% of the normal price range with a price range of $1.70.
  • PEP traded above its daily resistance level (quality: 125 days, meaning that the stock is crossing a resistance level set by the last 125 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 PEP:

PepsiCo, Inc. operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay's and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, dips, Fritos corn chips, and Santitas tortilla chips. The stock currently has a dividend yield of 2.8%. PEP has a PE ratio of 19.0. Currently there are 9 analysts that rate PepsiCo a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for PepsiCo has been 6.0 million shares per day over the past 30 days. PepsiCo has a market cap of $127.4 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 0.33 and a short float of 0.7% with 2.46 days to cover. Shares are down 0.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates PepsiCo as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, notable return on equity, expanding profit margins and reasonable valuation levels. 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:
  • PEPSICO INC has improved earnings per share by 5.7% 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, PEPSICO INC increased its bottom line by earning $4.32 versus $3.92 in the prior year. This year, the market expects an improvement in earnings ($4.52 versus $4.32).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.0%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Beverages industry and the overall market, PEPSICO INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The gross profit margin for PEPSICO INC is rather high; currently it is at 56.50%. 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 8.65% trails the industry average.

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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