Watch Out: Barbarians At The Gate For American Capital (ACAS)

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 American Capital ( ACAS) 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 American Capital as such a stock due to the following factors:

  • ACAS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $41.0 million.
  • ACAS has traded 1.7 million shares today.
  • ACAS traded in a range 230% of the normal price range with a price range of $0.64.
  • ACAS traded above its daily resistance level (quality: 36 days, meaning that the stock is crossing a resistance level set by the last 36 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 ACAS:

American Capital, Ltd. is a private equity and venture capital firm specializing in management and employee buyouts, subordinated debt, leveraged finance, mezzanine, acquisition, recapitalization, middle market, early venture, mature, industry consolidation, and growth capital investments. ACAS has a PE ratio of 29.3. Currently there are 3 analysts that rate American Capital a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for American Capital has been 3.2 million shares per day over the past 30 days. American has a market cap of $4.0 billion and is part of the financial sector and financial services industry. The stock has a beta of 1.63 and a short float of 2.5% with 2.50 days to cover. Shares are down 4% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates American Capital as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • Net operating cash flow has increased to $57.00 million or 21.27% when compared to the same quarter last year. Despite an increase in cash flow of 21.27%, AMERICAN CAPITAL LTD is still growing at a significantly lower rate than the industry average of 97.77%.
  • The gross profit margin for AMERICAN CAPITAL LTD is rather high; currently it is at 55.08%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ACAS's net profit margin of -154.23% significantly underperformed when compared to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 248.0% when compared to the same quarter one year ago, falling from $123.00 million to -$182.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, AMERICAN CAPITAL LTD underperformed against that of the industry average and is significantly less than that of 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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