Trade-Ideas: NetApp (NTAP) Is Today's

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 NetApp ( NTAP) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified NetApp as such a stock due to the following factors:

  • NTAP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $126.6 million.
  • NTAP has traded 3.5 million shares today.
  • NTAP traded in a range 215.2% of the normal price range with a price range of $1.22.
  • NTAP traded below its daily resistance level (quality: 8 days, meaning that the stock is crossing a resistance level set by the last 8 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' 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 negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on NTAP:

NetApp, Inc. provides software, systems, and services to manage and store computer data worldwide. The stock currently has a dividend yield of 2.1%. NTAP has a PE ratio of 2. Currently there are 4 analysts that rate NetApp a buy, 5 analysts rate it a sell, and 17 rate it a hold.

The average volume for NetApp has been 4.1 million shares per day over the past 30 days. NetApp has a market cap of $10.5 billion and is part of the technology sector and computer hardware industry. The stock has a beta of 0.76 and a short float of 4.4% with 3.73 days to cover. Shares are down 16.6% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates NetApp as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • Despite currently having a low debt-to-equity ratio of 0.44, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NTAP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.25 is high and demonstrates strong liquidity.
  • Net operating cash flow has slightly increased to $396.60 million or 7.33% when compared to the same quarter last year. Despite an increase in cash flow, NETAPP INC's cash flow growth rate is still lower than the industry average growth rate of 48.86%.
  • The gross profit margin for NETAPP INC is rather high; currently it is at 65.45%. Regardless of NTAP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NTAP's net profit margin of 8.76% is significantly lower than the industry average.
  • NETAPP INC's earnings per share declined by 27.1% 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, NETAPP INC reported lower earnings of $1.75 versus $1.85 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus $1.75).
  • The revenue fell significantly faster than the industry average of 33.3%. Since the same quarter one year prior, revenues slightly dropped by 6.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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