Heelys Inc. (NASDAQ: HLYS) makes sports equipment directed at children in the 6 to 14 year-old age bracket. The firm's primary product is footwear that features a removable wheel in the heel. Users can transition from walking to skating, by shifting weight to the heel. The company sells footwear, protective gear and apparel items through such retailers as Nordstrom (NYSE: JWN). Nike (NYSE: NKE) is a competitor.

The stock fell sharply in August, when the firm said it faced excess inventory at many U.S. retail outlets, but it popped late last week, when Heelys introduced a broad new line of wheeled-footwear colors and styles. The move boosted the share price through 30-day and 50-day moving average resistance curves into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside. The catalyst for such a move may prove to be Wednesday's announcement that the company plans a November roll-out of a non-wheeled footwear line, featuring a sole that resembles a video game controller. Four video games will come free in the shoe box. The stock has a very high short ratio and a short-squeeze may be developing.

Brokers recommend the issue with six "holds." Analysts expect a 14% average annual growth rate, through the next five years. The HLYS P/E ratio (6.30), Price to Sales ratio (1.03), Price to Book ratio (2.36), Price to Cash Flow ratio (6.11), Sales Growth rate (140%), EPS Growth rate (191%), Operating Margin (25.34%), Net Profit Margin (16.65%), Return on Assets (56.53%), Return on Investment (70.06%) and Return on Equity (70.06%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 44% of the outstanding shares. Over the past 52 weeks, the stock has traded between $7.65 and $40.09. A stop-loss of $8.50 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.