Water-Logged And Getting Wetter Stock Of The Day: Alliance Data Systems (ADS)

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 Alliance Data Systems ( ADS) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Alliance Data Systems as such a stock due to the following factors:

  • ADS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $110.1 million.
  • ADS has traded 292,406 shares today.
  • ADS traded in a range 220.3% of the normal price range with a price range of $7.37.
  • ADS traded below its daily resistance level (quality: 108 days, meaning that the stock is crossing a resistance level set by the last 108 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' 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 negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on ADS:

Alliance Data Systems Corporation provides marketing and loyalty solutions in the United States, Canada, and other countries. ADS has a PE ratio of 32.4. Currently there are 12 analysts that rate Alliance Data Systems a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Alliance Data Systems has been 499,000 shares per day over the past 30 days. Alliance Data Systems has a market cap of $14.5 billion and is part of the services sector and diversified services industry. The stock has a beta of 1.17 and a short float of 10.7% with 4.88 days to cover. Shares are down 2.5% year-to-date as of the close of trading on Monday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Alliance Data Systems as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 12.2%. Since the same quarter one year prior, revenues rose by 23.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ALLIANCE DATA SYSTEMS CORP has improved earnings per share by 28.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ALLIANCE DATA SYSTEMS CORP increased its bottom line by earning $7.43 versus $6.60 in the prior year. This year, the market expects an improvement in earnings ($12.40 versus $7.43).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 18.0% when compared to the same quarter one year prior, going from $116.44 million to $137.44 million.
  • Net operating cash flow has slightly increased to $254.69 million or 1.28% when compared to the same quarter last year. In addition, ALLIANCE DATA SYSTEMS CORP has also modestly surpassed the industry average cash flow growth rate of -2.67%.
  • Powered by its strong earnings growth of 28.07% and other important driving factors, this stock has surged by 31.62% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.

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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