Eyes On Valeant Pharmaceuticals International (VRX): Highlighted Storm The Castle 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 Valeant Pharmaceuticals International ( VRX) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Valeant Pharmaceuticals International as such a stock due to the following factors:

  • VRX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $282.3 million.
  • VRX has traded 3.7 million shares today.
  • VRX is trading at 4.06 times the normal volume for the stock at this time of day.
  • VRX crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. 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 on. 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 VRX:

Valeant Pharmaceuticals International, Inc. develops, manufactures, and markets pharmaceuticals, over-the-counter (OTC) products, and medical devices in the areas of eye health, dermatology, and neurology therapeutic classes worldwide. Currently there are 9 analysts that rate Valeant Pharmaceuticals International a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Valeant Pharmaceuticals International has been 2.4 million shares per day over the past 30 days. Valeant Pharmaceuticals International has a market cap of $39.0 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.96 and a short float of 5.5% with 5.92 days to cover. Shares are down 1.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Valeant Pharmaceuticals International as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • VRX's very impressive revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues leaped by 86.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • VALEANT PHARMACEUTICALS INTL reported significant earnings per share improvement 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, VALEANT PHARMACEUTICALS INTL reported poor results of -$2.62 versus -$0.38 in the prior year. This year, the market expects an improvement in earnings ($8.00 versus -$2.62).
  • The debt-to-equity ratio is very high at 3.30 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, VRX maintains a poor quick ratio of 0.92, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, VALEANT PHARMACEUTICALS INTL's return on equity significantly trails that of both the industry average and the S&P 500.

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