Watch Out: Barbarians At The Gate For SM Energy (SM)

Trade-Ideas LLC identified SM Energy ( SM) 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 SM Energy as such a stock due to the following factors:

  • SM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $66.2 million.
  • SM has traded 3.7 million shares today.
  • SM traded in a range 224.5% of the normal price range with a price range of $2.59.
  • SM traded above its daily resistance level (quality: 23 days, meaning that the stock is crossing a resistance level set by the last 23 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 SM:

SM Energy Company, an independent energy company, engages in the acquisition, exploration, development, and production of crude oil and condensate, natural gas, and natural gas liquids in onshore North America. The stock currently has a dividend yield of 1.1%. Currently there are 7 analysts that rate SM Energy a buy, no analysts rate it a sell, and 10 rate it a hold.

The average volume for SM Energy has been 4.1 million shares per day over the past 30 days. SM Energy has a market cap of $608.6 million and is part of the basic materials sector and energy industry. The stock has a beta of 1.88 and a short float of 25.2% with 3.14 days to cover. Shares are down 49.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates SM Energy as a hold. The company's strongest point has been its very decent return on equity which we feel should persist. At the same time, however, we also find weaknesses including deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • SM ENERGY CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SM ENERGY CO swung to a loss, reporting -$6.60 versus $9.80 in the prior year. This year, the market expects an improvement in earnings (-$2.95 versus -$6.60).
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 84.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 202.03% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 202.6% when compared to the same quarter one year ago, falling from $331.73 million to -$340.26 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 Oil, Gas & Consumable Fuels industry and the overall market, SM ENERGY CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $193.50 million or 49.27% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, SM ENERGY CO has marginally lower results.

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