Family Dollar Stores (FDO) Marked As A Barbarian At The Gate

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 Family Dollar Stores ( FDO) 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 Family Dollar Stores as such a stock due to the following factors:

  • FDO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $77.2 million.
  • FDO has traded 177,246 shares today.
  • FDO traded in a range 257.5% of the normal price range with a price range of $0.96.
  • FDO 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 FDO:

Family Dollar Stores, Inc. operates a chain of general merchandise retail discount stores primarily for low- and middle-income consumers in the United States. The stock currently has a dividend yield of 1.6%. FDO has a PE ratio of 38. Currently there are no analysts that rate Family Dollar Stores a buy, 3 analysts rate it a sell, and 12 rate it a hold.

The average volume for Family Dollar Stores has been 865,600 shares per day over the past 30 days. Family Dollar Stores has a market cap of $9.0 billion and is part of the services sector and retail industry. The stock has a beta of 0.17 and a short float of 1% with 1.21 days to cover. Shares are down 1.4% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Family Dollar Stores as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • FDO's revenue growth has slightly outpaced the industry average of 2.2%. Since the same quarter one year prior, revenues slightly increased by 3.0%. 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.
  • Net operating cash flow has significantly increased by 128.39% to $195.95 million when compared to the same quarter last year. In addition, FAMILY DOLLAR STORES has also vastly surpassed the industry average cash flow growth rate of 30.18%.
  • The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.20 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Compared to its closing price of one year ago, FDO's share price has jumped by 38.17%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • FAMILY DOLLAR STORES's earnings per share declined by 16.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, FAMILY DOLLAR STORES reported lower earnings of $2.49 versus $3.83 in the prior year. This year, the market expects an improvement in earnings ($2.76 versus $2.49).

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