La Quinta Holdings (LQ) 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 La Quinta Holdings ( LQ) 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 La Quinta Holdings as such a stock due to the following factors:

  • LQ has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $25.8 million.
  • LQ has traded 367,432 shares today.
  • LQ traded in a range 217.7% of the normal price range with a price range of $0.79.
  • LQ traded above its daily resistance level (quality: 2 days, meaning that the stock is crossing a resistance level set by the last 2 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 LQ:

La Quinta Holdings Inc. owns, operates, and franchises select-service hotels under the La Quinta brand. It serves the upper-midscale and midscale segments. Currently there are 6 analysts that rate La Quinta Holdings a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for La Quinta Holdings has been 1.3 million shares per day over the past 30 days. La Quinta has a market cap of $3.1 billion and is part of the services sector and leisure industry. Shares are up 6.5% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates La Quinta Holdings as a sell. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 2.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LQ maintains a poor quick ratio of 0.71, which illustrates the inability to avoid short-term cash problems.
  • Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, LA QUINTA HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LA QUINTA HOLDINGS INC is rather high; currently it is at 52.13%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 2.47% trails the industry average.
  • Net operating cash flow has increased to $59.64 million or 46.07% when compared to the same quarter last year. In addition, LA QUINTA HOLDINGS INC has also vastly surpassed the industry average cash flow growth rate of -11.66%.
  • This stock has increased by 29.94% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.

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