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

  • WSO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $31.4 million.
  • WSO has traded 100,266 shares today.
  • WSO traded in a range 224.1% of the normal price range with a price range of $4.47.
  • WSO traded above its daily resistance level (quality: 98 days, meaning that the stock is crossing a resistance level set by the last 98 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.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in WSO with the Ticky from Trade-Ideas. See the FREE profile for WSO NOW at Trade-Ideas

More details on WSO:

Watsco, Inc., together with its subsidiaries, distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. The stock currently has a dividend yield of 2.8%. WSO has a PE ratio of 22.3. Currently there are 4 analysts that rate Watsco a buy, 2 analysts rate it a sell, and 4 rate it a hold.

The average volume for Watsco has been 238,900 shares per day over the past 30 days. Watsco has a market cap of $2.8 billion and is part of the services sector and wholesale industry. The stock has a beta of 1.20 and a short float of 4.2% with 3.32 days to cover. Shares are down 4.5% year-to-date as of the close of trading on Wednesday.

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 Watsco 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, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • WSO's revenue growth has slightly outpaced the industry average of 2.3%. Since the same quarter one year prior, revenues slightly increased by 4.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.47, which illustrates the ability to avoid short-term cash problems.
  • WATSCO INC has improved earnings per share by 8.1% 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, WATSCO INC increased its bottom line by earning $3.69 versus $2.61 in the prior year. This year, the market expects an improvement in earnings ($4.26 versus $3.69).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Trading Companies & Distributors industry average. The net income increased by 9.3% when compared to the same quarter one year prior, going from $51.32 million to $56.10 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Trading Companies & Distributors industry and the overall market on the basis of return on equity, WATSCO INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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

null