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Alberto Abaterusso
Alberto Abaterusso
Articles (2279) 

Analysts Suggest Holding These 2 Falling Knives

They have moderate to low debt-equity ratios

December 22, 2019 | About:

Analysts recommend maintaining holdings in Valaris PLC (VAL) and X Financial (NYSE:XYF) even though their share prices have fallen more than 59% in the past 12 months through Dec. 20, a downturn for which these two stocks are currently known as falling knives.

Investors usually hold positions in falling knives because they expect that these stocks will bounce back, posting impressive returns.

The rapid drop in the share price may, however, signal the existence of financial problems that can severly hurt investors' portfolios if they go bankrupt.

Likely shareholders of Valaris and X Financial still have the investment risk under their complete control as the debt exposure on the balance sheet of these companies is moderate.

Valaris

Shares of Valaris closed at $5.19 on Friday for a market capitalization of $1.03 billion. The stock fell 60% over the past 12 months through Dec. 20.

The British provider of off-shore drilling services has a debt-equity ratio of 0.66, which is above the industry median of 0.47.

GuruFocus assigned a low rating of 2 out of 10 for the company's financial strength. Concerning its profitability, GuruFocus assigned a moderate rating of 5 out of 10.

The closing price on Friday was still slightly above the 100- and 50-day simple moving average lines, but significantly below the 200-day line. The 52-week range is $3.42 to $19.56.

The stock has a price-book ratio of 0.11 compared to the industry median of 0.95 and a price-sales ratio of 0.39 versus the industry median of 0.89.

The 14-day relative strength index of 54 suggests the stock is still far from oversold levels.

Wall Street issued a hold recommendation rating with an average target price of $7.68, reflecting 48% upside from Friday’s closing price.

X Financial

Shares of X Financial closed at $1.77 per unit on Friday for a market capitalization of $282.24 million. The stock fell 66% over the past 12 months through Dec. 20.

The Chinese provider of personal financial services has a debt-equity ratio of 0.1 versus the industry median of 1.31.

The closing price on Friday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $1.65 to $7.54.

The stock has a price-earnings ratio of 2.21 versus the industry median of 11.95, a price-sales ratio of 063 versus the industry median of 2.24 and a price-book ratio of 0.48 compared to the industry median of 0.91.

The 14-day relative strength index of 46 suggests the stock is still far from oversold levels.

Wall Street sell-side analysts issued a hold recommendation rating and have established an average target price of $6.50, reflecting 267.2% upside from Friday ’s closing price.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about gold, silver and precious metals mining industries. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master's Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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