Cubist Pharmaceuticals (CBST) Marked As A Barbarian At The Gate

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 Cubist Pharmaceuticals ( CBST) 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 Cubist Pharmaceuticals as such a stock due to the following factors:

  • CBST has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $39.1 million.
  • CBST has traded 296,798 shares today.
  • CBST traded in a range 225.5% of the normal price range with a price range of $3.34.
  • CBST traded above its daily resistance level (quality: 26 days, meaning that the stock is crossing a resistance level set by the last 26 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 CBST:

Cubist Pharmaceuticals, Inc., a biopharmaceutical company, is engaged in the research, development, and commercialization of pharmaceutical products for medical needs in the acute care environment in the United States. CBST has a PE ratio of 3179.5. Currently there are 7 analysts that rate Cubist Pharmaceuticals a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Cubist Pharmaceuticals has been 693,900 shares per day over the past 30 days. Cubist has a market cap of $4.8 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.84 and a short float of 6.9% with 8.96 days to cover. Shares are down 7.7% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Cubist Pharmaceuticals as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and relatively poor performance when compared with the S&P 500 during the past year.

Highlights from the ratings report include:
  • CBST's revenue growth trails the industry average of 42.3%. Since the same quarter one year prior, revenues rose by 13.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CUBIST PHARMACEUTICALS INC has improved earnings per share by 30.4% in the most recent quarter compared to 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, CUBIST PHARMACEUTICALS INC swung to a loss, reporting -$0.26 versus $2.09 in the prior year. This year, the market expects an improvement in earnings ($0.72 versus -$0.26).
  • The gross profit margin for CUBIST PHARMACEUTICALS INC is currently very high, coming in at 70.28%. Regardless of CBST's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CBST's net profit margin of 8.16% is significantly lower than the industry average.
  • In its most recent trading session, CBST has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • 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 Biotechnology industry and the overall market, CUBIST PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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