Trade-Ideas: Brocade Communications Systems (BRCD) Is Today's Strong On High Relative Volume Stock

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 Brocade Communications Systems ( BRCD) as a strong on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Brocade Communications Systems as such a stock due to the following factors:

  • BRCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $36.8 million.
  • BRCD has traded 632,023 shares today.
  • BRCD is trading at 6.17 times the normal volume for the stock at this time of day.
  • BRCD is trading at a new high 3.08% above yesterday's close.

'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on BRCD:

Brocade Communications Systems, Inc. provides Internet protocol based networking solutions and storage area networking (SAN) solutions to businesses and organizations worldwide. The stock currently has a dividend yield of 1.5%. BRCD has a PE ratio of 17.1. Currently there are 5 analysts that rate Brocade Communications Systems a buy, 1 analyst rates it a sell, and 11 rate it a hold.

The average volume for Brocade Communications Systems has been 4.6 million shares per day over the past 30 days. Brocade Communications Systems has a market cap of $4.0 billion and is part of the technology sector and computer hardware industry. The stock has a beta of 0.78 and a short float of 3.9% with 4.65 days to cover. Shares are up 9.9% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Brocade Communications Systems as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • BRCD's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 1.7%. 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.
  • Although BRCD's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 2.66, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for BROCADE COMMUNICATIONS SYS is currently very high, coming in at 70.04%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BRCD's net profit margin of 16.01% significantly trails the industry average.
  • Net operating cash flow has slightly increased to $106.03 million or 3.79% when compared to the same quarter last year. Despite an increase in cash flow, BROCADE COMMUNICATIONS SYS's average is still marginally south of the industry average growth rate of 5.16%.

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