Watch Out: Barbarians At The Gate For HMS Holdings (HMSY)

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.

Trade-Ideas LLC identified HMS Holdings ( HMSY) 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 HMS Holdings as such a stock due to the following factors:

  • HMSY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $23.1 million.
  • HMSY has traded 54,168 shares today.
  • HMSY traded in a range 202.5% of the normal price range with a price range of $1.12.
  • HMSY traded above its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 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 HMSY:

HMS Holdings Corp., through its subsidiaries, provides healthcare insurance benefit cost containment services in the United States. HMSY has a PE ratio of 105.2. Currently there are 8 analysts that rate HMS Holdings a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for HMS Holdings has been 1.2 million shares per day over the past 30 days. HMS has a market cap of $1.5 billion and is part of the services sector and diversified services industry. The stock has a beta of 0.83 and a short float of 18% with 9.76 days to cover. Shares are down 20.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates HMS Holdings as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • Despite currently having a low debt-to-equity ratio of 0.37, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.18 is very high and demonstrates very strong liquidity.
  • HMSY, with its decline in revenue, underperformed when compared the industry average of 21.9%. Since the same quarter one year prior, revenues slightly dropped by 7.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The gross profit margin for HMS HOLDINGS CORP is currently lower than what is desirable, coming in at 34.50%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.13% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $18.97 million or 26.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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