Watch For Today's Momo Momentum Stock: Salix Pharmaceuticals (SLXP)

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 Salix Pharmaceuticals ( SLXP) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Salix Pharmaceuticals as such a stock due to the following factors:

  • SLXP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $159.0 million.
  • SLXP has a PE ratio of 152.4.
  • SLXP is currently in the upper 30% of its 1-year range.
  • SLXP is in the upper 25% of its 20-day range.
  • SLXP is in the upper 35% of its 5-day range.
  • SLXP is currently trading above yesterday's high.
  • SLXP has experienced a gap between today's open and yesterday's close of 0.5%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on SLXP:

Salix Pharmaceuticals, Ltd. acquires, develops, and commercializes prescription drugs and medical devices to treat various gastrointestinal diseases in the United States. SLXP has a PE ratio of 152.4. Currently there are 9 analysts that rate Salix Pharmaceuticals a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Salix Pharmaceuticals has been 1.1 million shares per day over the past 30 days. Salix has a market cap of $8.3 billion and is part of the health care sector and drugs industry. The stock has a beta of 1.14 and a short float of 17.3% with 6.64 days to cover. Shares are up 45.7% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Salix Pharmaceuticals as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • SLXP's very impressive revenue growth greatly exceeded the industry average of 4.6%. Since the same quarter one year prior, revenues leaped by 62.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, SLXP's share price has jumped by 82.79%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • SALIX PHARMACEUTICALS LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SALIX PHARMACEUTICALS LTD increased its bottom line by earning $2.14 versus $1.01 in the prior year. This year, the market expects an improvement in earnings ($6.45 versus $2.14).
  • The gross profit margin for SALIX PHARMACEUTICALS LTD is rather high; currently it is at 62.69%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SLXP's net profit margin of 0.85% is significantly lower than 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 Pharmaceuticals industry. The net income has significantly decreased by 84.4% when compared to the same quarter one year ago, falling from $21.00 million to $3.28 million.

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