Barbarian At The Gate: Zimmer Holdings (ZMH)

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 Zimmer Holdings ( ZMH) 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 Zimmer Holdings as such a stock due to the following factors:

  • ZMH has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $123.4 million.
  • ZMH has traded 475,300 shares today.
  • ZMH traded in a range 200.4% of the normal price range with a price range of $2.72.
  • ZMH traded above its daily resistance level (quality: 22 days, meaning that the stock is crossing a resistance level set by the last 22 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 ZMH:

Zimmer Holdings, Inc., together with its subsidiaries, designs, develops, manufactures, and markets orthopaedic reconstructive devices, spinal and trauma devices, biologics, dental implants, and related surgical products in the Americas, Europe, and the Asia Pacific. The stock currently has a dividend yield of 0.8%. ZMH has a PE ratio of 29. Currently there are 16 analysts that rate Zimmer Holdings a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Zimmer Holdings has been 1.1 million shares per day over the past 30 days. Zimmer has a market cap of $19.4 billion and is part of the health care sector and health services industry. The stock has a beta of 1.26 and a short float of 2.5% with 3.84 days to cover. Shares are up 0.6% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Zimmer Holdings as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The gross profit margin for ZIMMER HOLDINGS INC is currently very high, coming in at 81.82%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.61% is above that of the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ZIMMER HOLDINGS INC's earnings per share declined by 20.9% 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, ZIMMER HOLDINGS INC reported lower earnings of $4.19 versus $4.43 in the prior year. This year, the market expects an improvement in earnings ($6.35 versus $4.19).
  • ZMH, with its decline in revenue, underperformed when compared the industry average of 21.8%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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