Watch Out: Barbarians At The Gate For Chemtura (CHMT)

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 Chemtura ( CHMT) 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 Chemtura as such a stock due to the following factors:

  • CHMT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $20.6 million.
  • CHMT has traded 320,489 shares today.
  • CHMT traded in a range 247.7% of the normal price range with a price range of $1.54.
  • CHMT traded above its daily resistance level (quality: 29 days, meaning that the stock is crossing a resistance level set by the last 29 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 CHMT:

Chemtura Corporation, together with its subsidiaries, develops, manufactures, and markets performance-driven engineered specialty chemicals for industrial manufacturing customers in the United States and internationally. CHMT has a PE ratio of 3. Currently there are 4 analysts that rate Chemtura a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Chemtura has been 723,000 shares per day over the past 30 days. Chemtura has a market cap of $1.9 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 2.09 and a short float of 8.8% with 6.33 days to cover. Shares are up 18.4% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Chemtura as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 233.3% when compared to the same quarter one year prior, rising from $6.00 million to $20.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.61, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.41, which illustrates the ability to avoid short-term cash problems.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Chemicals industry and the overall market, CHEMTURA CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.

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