Barbarian At The Gate: Vertex Pharmaceuticals (VRTX)

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 Vertex Pharmaceuticals ( VRTX) 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 Vertex Pharmaceuticals as such a stock due to the following factors:

  • VRTX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $140.2 million.
  • VRTX has traded 758,675 shares today.
  • VRTX traded in a range 201% of the normal price range with a price range of $6.98.
  • VRTX traded above its daily resistance level (quality: 526 days, meaning that the stock is crossing a resistance level set by the last 526 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 VRTX:

Vertex Pharmaceuticals Incorporated is engaged in discovering, developing, manufacturing, and commercializing small molecule drugs for patients with serious diseases in specialty markets. Currently there are 9 analysts that rate Vertex Pharmaceuticals a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Vertex Pharmaceuticals has been 1.7 million shares per day over the past 30 days. Vertex has a market cap of $26.8 billion and is part of the health care sector and drugs industry. The stock has a beta of -0.75 and a short float of 4.1% with 7.16 days to cover. Shares are up 50.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Vertex Pharmaceuticals as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, unimpressive growth in net income and disappointing return on equity.

Highlights from the ratings report include:
  • Compared to its closing price of one year ago, VRTX's share price has jumped by 84.18%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • VRTX's debt-to-equity ratio of 0.72 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 4.28 is very high and demonstrates very strong liquidity.
  • The revenue fell significantly faster than the industry average of 41.4%. Since the same quarter one year prior, revenues fell by 19.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • VERTEX PHARMACEUTICALS INC's earnings per share declined by 35.8% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, VERTEX PHARMACEUTICALS INC reported poor results of -$2.01 versus -$0.50 in the prior year. For the next year, the market is expecting a contraction of 50.2% in earnings (-$3.02 versus -$2.01).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 37.0% when compared to the same quarter one year ago, falling from -$124.13 million to -$170.06 million.

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