Watch Out: Barbarians At The Gate For Ralph Lauren (RL)

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 Ralph Lauren ( RL) 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 Ralph Lauren as such a stock due to the following factors:

  • RL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $115.8 million.
  • RL has traded 266,141 shares today.
  • RL traded in a range 271.3% of the normal price range with a price range of $5.55.
  • RL traded above its daily resistance level (quality: 1 day, meaning that the stock is crossing a resistance level set by the last 1 calendar day. 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 RL:

Ralph Lauren Corporation designs, markets, and distributes lifestyle products worldwide. The company operates in three segments: Wholesale, Retail, and Licensing. The stock currently has a dividend yield of 1.5%. RL has a PE ratio of 17. Currently there are 3 analysts that rate Ralph Lauren a buy, no analysts rate it a sell, and 11 rate it a hold.

The average volume for Ralph Lauren has been 861,600 shares per day over the past 30 days. Ralph Lauren has a market cap of $8.3 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.11 and a short float of 4.8% with 3.56 days to cover. Shares are down 27.3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Ralph Lauren as a hold. 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 and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.9%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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.
  • RL's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, RL has a quick ratio of 1.58, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has increased to $615.00 million or 13.88% when compared to the same quarter last year. Despite an increase in cash flow of 13.88%, RALPH LAUREN CORP is still growing at a significantly lower rate than the industry average of 112.60%.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, RL has underperformed the S&P 500 Index, declining 12.12% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Textiles, Apparel & Luxury Goods industry average, but is greater than that of the S&P 500. The net income has decreased by 9.3% when compared to the same quarter one year ago, dropping from $237.00 million to $215.00 million.

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