Dreamworks Animation SKG (DWA) 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 Dreamworks Animation SKG ( DWA) 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 Dreamworks Animation SKG as such a stock due to the following factors:

  • DWA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $21.9 million.
  • DWA has traded 1.6 million shares today.
  • DWA traded in a range 352.7% of the normal price range with a price range of $2.40.
  • DWA traded above its daily resistance level (quality: 20 days, meaning that the stock is crossing a resistance level set by the last 20 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 DWA:

DreamWorks Animation SKG, Inc. is engaged in the development, production, and exploitation of animated films and their associated characters worldwide. The company operates through four segments: Feature Films, Television, Consumer Products, and Others. Currently there is 1 analyst that rates Dreamworks Animation SKG a buy, 2 analysts rate it a sell, and 6 rate it a hold.

The average volume for Dreamworks Animation SKG has been 1.1 million shares per day over the past 30 days. Dreamworks Animation SKG has a market cap of $1.6 billion and is part of the services sector and media industry. The stock has a beta of 0.65 and a short float of 22.6% with 10.31 days to cover. Shares are down 43% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Dreamworks Animation SKG as a hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • DWA's debt-to-equity ratio is very low at 0.29 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • The revenue fell significantly faster than the industry average of 11.8%. Since the same quarter one year prior, revenues fell by 42.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • DREAMWORKS ANIMATION INC 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DREAMWORKS ANIMATION INC turned its bottom line around by earning $0.65 versus -$0.43 in the prior year. For the next year, the market is expecting a contraction of 115.4% in earnings (-$0.10 versus $0.65).
  • The gross profit margin for DREAMWORKS ANIMATION INC is currently lower than what is desirable, coming in at 28.41%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -12.58% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$53.95 million or 145.37% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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