Watch Out: Barbarians At The Gate For Estee Lauder Cos (EL)

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 Estee Lauder Cos ( EL) 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 Estee Lauder Cos as such a stock due to the following factors:

  • EL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $114.3 million.
  • EL has traded 817,100 shares today.
  • EL traded in a range 234% of the normal price range with a price range of $2.42.
  • EL traded above its daily resistance level (quality: 4 days, meaning that the stock is crossing a resistance level set by the last 4 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 EL:

The Estee Lauder Companies Inc. manufactures, markets, and sells skin care, makeup, fragrance, and hair care products worldwide. The stock currently has a dividend yield of 1.3%. EL has a PE ratio of 25.6. Currently there are 10 analysts that rate Estee Lauder Cos a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Estee Lauder Cos has been 1.8 million shares per day over the past 30 days. Estee Lauder Cos has a market cap of $17.1 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.10 and a short float of 2% with 3.03 days to cover. Shares are down 3% year-to-date as of the close of trading on Friday.

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TheStreet Quant Ratings rates Estee Lauder Cos as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. 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 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. When compared to other companies in the Personal Products industry and the overall market, LAUDER (ESTEE) COS INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The gross profit margin for LAUDER (ESTEE) COS INC is currently very high, coming in at 83.43%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 8.66% is above that of the industry average.
  • Net operating cash flow has significantly increased by 327.09% to $127.70 million when compared to the same quarter last year. In addition, LAUDER (ESTEE) COS INC has also vastly surpassed the industry average cash flow growth rate of 27.61%.
  • EL, with its decline in revenue, slightly underperformed the industry average of 5.7%. Since the same quarter one year prior, revenues slightly dropped by 1.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.49 is sturdy.


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