Unexpectedly, Wall Street recommends acquiring shares of Protara Therapeutics Inc (TARA, Financial) and IMARA Inc (IMRA, Financial), despite the fact that these two equities have shown poor performance over the prior 52 weeks through June 3. With positive recommendations despite the share price tumble, these two stocks have earned the nickname "falling knives."
Investors acquire falling knives because they expect that their share prices will bounce back. Investors try to catch them near their lowest levels, so this way they hope to boost the capital gains from their investments. However, investors must be cautious when investing in falling knives as they imply a remarkable risk. The strong decline in the share price could be a signal of permanent issues.
Protara Therapeutics Inc
Based in New York, Protara Therapeutics Inc is a biotechnology developer of treatments for lymphatic malformations and intestinal failure associated liver disease.
Shares of Protara Therapeutics Inc were trading at around $9.26 at close on Thursday following a 79.43% decline over the past 52 weeks.
The stock has a market capitalization of about $113 million, a 52-week range of $8.54 to $59 and a 14-day relative strength index of 34, which indicates the stock is not far from oversold levels as a result of the sharp decline in the share price.
The balance sheet is not in bad shape. The current ratio of 26.47 tells that the company has a sufficient amount of total current assets compared to current liabilities.
With regard to the profitability, the company is not generating income from sales yet, as it is still in the development stage. Thus, the return on total assets, return on equity and return on capital ratios are all negative, while the operating profit margin and the net profit margin are also still not yielding positive rates.
On Wall Street, the stock has a median recommendation rating of buy and an average price target of $41.50 per share.
IMARA Inc
Based in Boston, Massachusetts, IMARA Inc is a biotechnology developer of therapies for the treatment of sickle cell disease and the alpha type of thalassemia.
Shares of IMARA Inc were trading around $8.19 at close on Thursday following an 82.64% decline over the past 52 weeks.
The stock has a market capitalization of $144.5 million, a 52-week range of $6.61 to $62.71 and a 14-day relative strength index of 56, which suggests that the stock is still far from oversold levels although its share price has gone down heavily over the observed period.
From a financial standpoint, the company is still able to honor short-term debt obligations. As of the March 2021 quarter, the balance sheet had about $76 million in cash and short-term investments, nearly $75 million in working capital and total liabilities of $6 million. However, research and developments, as well as general and administrative activities, have piled up a deficit totaling $106.4 million (against a total equity of $76 million), which one day must be covered.
With regard to the profitability of the company, financial indicators such as the ROE, ROA and ROC ratios are still in negative territory, as the company is not generating any sales. Currently, the operating activities consist of the advancement of therapies that the company wishes to commercialize as soon as they are developed and approved. The operating income and net margin income are negative as well.
On Wall Street, the stock has a median recommendation rating of buy and an average price target of $35 per share.
Disclosure: I have no positions in any securities mentioned.
