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Alberto Abaterusso
Alberto Abaterusso
Articles (2145) 

Wall Street Recommends Picking Up These Falling Knives

They imply a low investment risk, as their balance sheets are moderately leveraged

February 04, 2020 | About:

Wall Street sell-side analysts recommend buying shares of Aurora Mobile Limited (NASDAQ:JG) and Kezar Life Sciences Inc (NASDAQ:KZR), two falling knives whose share prices lost more than 59% over the past 52 weeks through Feb. 3.

Investors typically buy falling knives because they believe that they can make a sizeable return after prices have rebounded. However, such share price flops could also signal the effects of major underlying financial issues, which can seriously hurt the portfolio of an investor if the business fails. Investors can reduce this risk significantly if they focus on falling knives with less risk, which is assessed in this article by a moderate to low debt-equity ratio.

Aurora Mobile Limited

The share price of Aurora Mobile closed at $2.71 on Feb. 3 for a market cap of $310.97 million. The stock price declined 68% over the past 52 weeks through Feb. 3.

The Chinese provider of mobile data solutions in the People's Republic of China has a moderate debt-equity ratio of 0.43. The Altman Z-Score of 3.75 (greater than 2.99) indicates that Aurora Mobile Limited is in safe zones.

The stock has received a Wall Street recommendation rating of buy with an average target share price of ¥37.16 Chinese Yuan (approximately $5.30).

Monday’s closing price was below the 200- and 100-day simple moving average lines but still slightly above the 50-day SMA line. The 52-week range was $2 to $9.78.

The price-book ratio is 4.15 versus the industry median of 2.87 and the price-sales ratio is 2.25, which is almost on par with the industry median of 2.24.

The 14-day relative strength index of 54 suggests the stock is neither overbought nor oversold.

Kezar Life Sciences Inc

The share price of Kezar Life Sciences Inc closed at $3.09 on Feb. 3 for a market cap of $59.33 million. The stock price fell sharply 83% over the past year through Feb. 3.

The San Francisco-based clinical-stage biotech focuses on developing small molecule therapeutics for autoimmune diseases and cancer. On a very low debt-equity ratio of 0.08, GuruFocus has produced a rating of 5 out of 10 for the company’s financial strength.

Analysts from Wall Street have issued three strong buys and one buy for this stock and have set an average target price of $26.50.

The closing share price on Monday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $2.36 to $22.5.

The stock has a price-book ratio of 0.68 compared to the industry median of 3.77.

The 14-day relative strength index of 47 suggests that the stock is not oversold yet, despite the share price tumble.

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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