Dreamworks Animation SKG (DWA) Is Today's Water-Logged And Getting Wetter Stock

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 Dreamworks Animation SKG ( DWA) 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 Dreamworks Animation SKG as such a stock due to the following factors:

  • DWA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $36.0 million.
  • DWA has traded 1.0 million shares today.
  • DWA traded in a range 218.6% of the normal price range with a price range of $1.79.
  • DWA traded below its daily resistance level (quality: 18 days, meaning that the stock is crossing a resistance level set by the last 18 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 DWA:

DreamWorks Animation SKG, Inc. engages in the development, production, and exploitation of animated films and their associated characters worldwide. The company operates in four segments: Feature Films, Television Series and Specials, Consumer Products, and New Media. Currently there are 3 analysts that rate Dreamworks Animation SKG a buy, 4 analysts rate it a sell, and 2 rate it a hold.

The average volume for Dreamworks Animation SKG has been 652,900 shares per day over the past 30 days. Dreamworks Animation SKG has a market cap of $2.2 billion and is part of the services sector and media industry. The stock has a beta of 0.56 and a short float of 44.4% with 9.44 days to cover. Shares are up 24.5% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Dreamworks Animation SKG as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • DWA's revenue growth has slightly outpaced the industry average of 4.0%. Since the same quarter one year prior, revenues rose by 13.1%. 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.
  • The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Media industry average. The net income has significantly decreased by 27.6% when compared to the same quarter one year ago, falling from -$42.94 million to -$54.78 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Media industry and the overall market, DREAMWORKS ANIMATION INC's return on equity significantly trails that of both the industry average and the S&P 500.

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