Wall Street sell-side analysts recommend holding shares of Upwork Inc. (UPWK, Financial) and trivago NV (TRVG, Financial), even though their share prices have fallen more than 59% over the last 12 months through Feb. 28. As a result of such sharp declines, these stocks are known as falling knives.
Some investors pick up falling knives for their portfolios because they think their investments will return achieve high returns once the share prices rebound. These investors are aware of the sizeable risk that this type of investment implies, which could translate into severe losses if the underlying business fails.
Investors can lower such risks if they select falling knives with a moderate to low financial burden. These falling knives have a debt-equity ratio of no more than 0.5.
Upwork
Shares of Upwork traded at a price of $8.67 per share on Feb. 28 for a market capitalization of $970.66 million. The stock price has fallen 62% over the past 12 months through Feb. 28.
The Mountain View, California-based provider of staffing and employment services through an ad hoc online marketplace has a low debt-equity ratio of 0.08 versus the industry median of 0.49. Furthermore, the Altman Z-Score of 4.23 indicates that the company is financially stable.
Wall Street recommends an overweight rating for this company and has established an average target price of $12.67 per share, reflecting a 46.1% upside from Friday’s closing price.
Currently, the share price trades below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $6.80 to $25.
The price-book ratio is 3.69 versus the industry median of 1.65 and the price-sales ratio is 3.22 versus the industry median of 0.93.
The 14-day relative strength index of 41 suggests the stock is still far from oversold levels despite the share price downturn.
trivago NV
Shares of trivago NV traded at a price of $1.82 at close on Feb. 28 for a market capitalization of $641.55 million. The stock price has fallen 65% over the last 52 weeks through Feb. 28.
The German operator of a hotel and accommodation search online platform has a low debt-equity ratio of 0.11 versus the industry median of 0.15. The Altman Z-Score of 2.61 says that the company is in the grey zone, but it doesn’t run any concrete risk of bankruptcy. In fact, the Piotroski F-Score of 5 indicates that the company still enjoys a stable financial situation.
Wall Street sell-side analysts recommend holding shares of this stock and have set an average target price of $2.93, which reflects a 61% upside.
The closing share price on Friday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $1.70 to $5.50.
The stock has a price-book ratio of 0.64 versus the industry median of 2.79 and a price-sales ratio of 0.73 compared to the industry median of 2.84.
The 14-day relative strength index of 25 suggests that the stock trespassed oversold levels as a result of the huge depreciation of the share price.
Disclosure: I have no positions in any securities mentioned.
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