Unexpectedly, Wall Street recommends acquiring shares of Hycroft Mining Holding Corp (HYMC, Financial) and Aytu BioPharma Inc (AYTU, Financial), even though these two stocks have shown poor performance over the prior 52 weeks through Aug. 16. With positive recommendations despite the share price tumble, these two equities have earned the nickname "falling knives."
Investors acquire falling knives because they expect that their share prices will bounce back. The idea is to try to catch them near their lowest levels in order to benefit from strong capital gains. However, investors must be cautious when investing in falling knives due to the remarkable risk implied. The strong decline in the share price could indicate long-lasting issues.
Hycroft Mining Holding Corp
Based in Denver, Colorado, Hycroft Mining Holding Corp(HYMC, Financial) is a precious metal mining company with mineral properties in Nevada where proven and probable reserves of gold and silver amount to almost 12 million ounces and 480 million ounces, respectively.
Shares of Hycroft Mining were trading around $1.80 at close on Friday after an 82.71% decline over the past 52 weeks.
The stock has a market capitalization of approximately $107.36 million, a 52-week range of $1.76 to $13.11 and a 14-day relative strength index of 28, indicating that the stock is close to oversold levels because of the sharp share price decline.
With regard to the balance sheet of the company, the Piotrowski F-Score is excellent at 9 out of 9, which means that the financial situation of the company is stable. However, the Altman Z-Score is -3.2, which suggests that the company is in the distress zone and could go bankrupt within two years. As of the most recent quarter, which ended on June 29, the company has more than $30 million in cash on hand and equivalents, but also nearly $160 million in total debt.
Regarding profitability, GuruFocus has assigned the lowest rating of 1 out of 10 to the company, driven by negative values for the operating and net margin ratios as well as for the returns on total assets and capital ratios.
Analysts expect that gold and silver will trade higher over the next 12 months, The first reason for this is low interest rates, because a depressed yield environment favors investments in the precious metal over bonds and other fixed-income securities. The second reason is high inflation. The third factor is volatility, which is expected to increase due to the ongoing pandemic. The price of gold is expected to rise 10% over the next 12 months, while the price of silver is expected to gain 30%.
On Wall Street, the stock has a median recommendation rating of buy and an average price target of about $13 per share.
Aytu BioPharma Inc
Based in Englewood, Colorado, Aytu BioPharma Inc (AYTU, Financial) is a biotechnology developer and marketer of novel therapeutics to treat testosterone deficiency, various upper respiratory symptoms, sleeping problems and male infertility.
Shares of Aytu BioPharma Inc were trading around $3.30 at close on Friday following a nearly 75% decline over the past 52 weeks.
The market capitalization hovers around $83.06 million, the 52-week range is $3.30 to $14 and the 14-day relative strength index yields 24, suggesting the stock is close to oversold levels following the share price tumble.
Regarding its financial strength, the balance sheet appears vulnerable, since the Piotrowski F-Score of 2 out of 9 and the Altman Z-Score of -0.65 indicate that the financial situation is unstable and the company faces a considerable risk of going bankrupt within two years.
From a profitability standpoint, the current situation shows that all the major profitability indicators are negative, though in many cases they are not worse than the industry medians. However, Ebitda and EPS per share have improved over the past three years, showing yearly average growth rates of 92.5% and 93.2%, respectively.
The company has enhanced its presence in the pediatrics business thanks to the merger with Neos Therapeutics. From the transaction, the company is expected to achieve relevant cost synergies and higher revenues.
On Wall Street, the stock has a median recommendation rating of buy and an average price target of about $17.50 per share.
Disclosure: I have no positions in any security mentioned.
