Brocade Communications Systems, Inc. (BRCD) — This leading provider of switches and software for network storage has experienced erratic revenue growth due in part to the volatile nature of its industry and increasing competition.
Sales were down 1% in fiscal 2014 (ended Oct. 31), and S&P Capital IQ Equity Research forecasts revenue growth of just 1% to 2% in FY 2015 and FY 2016. This limited growth estimate reflects a slowdown in IT spending on storage and pricing issues. Additional risks cited by Capital IQ analysts include a global economic slowdown, which could have a negative impact on IT spending, and more competition possibly resulting from industry consolidation.
BRCD stock double-topped in late February and late June at just under $13. It broke its bullish support line at about $11.75 and its 200-day moving average in early July, finally reaching a low at $9.67 on July 27.
BRCD stock is now trading in a bearish recovery channel with a high at about $11 and a low at $10.20. Support at $10.33 is currently being tested, and a bounce from there could provide an opportunity to sell BRCD stock short at $10.75 with a target of $9.50. If successful, this short sale could provide a relatively quick trading profit of almost 12%. A stop-loss order should be entered at $11.
The company pays a quarterly dividend of 4.5 cents. If you hold shares short through the ex-dividend date, expected in early December, you will be required to pay the dividend to the owner of the stock. Also check with your broker for any other special restrictions on shorting.
