Watch Out: Barbarians At The Gate For AOL (AOL)

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 AOL ( AOL) 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 AOL as such a stock due to the following factors:

  • AOL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $69.9 million.
  • AOL has traded 1.3 million shares today.
  • AOL traded in a range 239.4% of the normal price range with a price range of $2.66.
  • AOL traded above its daily resistance level (quality: 183 days, meaning that the stock is crossing a resistance level set by the last 183 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 AOL:

AOL Inc. provides various digital brands, products and services to consumers, advertisers, publishers and subscribers worldwide. AOL has a PE ratio of 47.5. Currently there are 7 analysts that rate AOL a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for AOL has been 1.1 million shares per day over the past 30 days. AOL has a market cap of $3.4 billion and is part of the technology sector and internet industry. The stock has a beta of 1.06 and a short float of 9.3% with 3.47 days to cover. Shares are down 7.8% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates AOL 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, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth significantly trails the industry average of 43.9%. Since the same quarter one year prior, revenues rose by 12.1%. 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 AOL's debt-to-equity ratio of 0.10 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
  • Compared to its closing price of one year ago, AOL's share price has jumped by 27.02%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • Net operating cash flow has increased to $125.90 million or 40.82% when compared to the same quarter last year. Despite an increase in cash flow, AOL INC's average is still marginally south of the industry average growth rate of 41.67%.
  • AOL INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AOL INC reported lower earnings of $1.12 versus $11.02 in the prior year. This year, the market expects an improvement in earnings ($2.06 versus $1.12).

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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