The following securities are falling knives, meaning their share prices have declined more than 59% over the last 52 weeks. Some investors are interested in these stocks because they believe the companies will rebound and reward them with impressive returns.
Investors are also aware that such a large decline can be a sign of financial distress, which will cause a major loss if it turns to insolvency.
The risk is very high with this kind of investment, but if investors look for companies that have no debt and a moderate to high current ratio, the risk can be significantly decreased.
In addition, the companies have received an overweight recommendation rating from Wall Street, increasing the chances of a successful bet as these stocks are expected to outperform their industries within 12 months.
Inogen Inc. (INGN, Financial) closed at $4.2 per share on Thursday after tumbling 64% over the past year through June 6, pushing the price below the 200-, 100- and 50-day simple moving average lines. The closing price on Thursday was 4.2% above the 52-week low of $62.33 and 343.4% below the 52-week high of $287.79.
The Goleta, California-based medical devices company has a market capitalization of $1.42 billion. The price-book ratio is 4.47 versus the industry median of 3.06, the price-sales ratio is 3.95 versus the industry median of 3.15 and the price-earnings ratio is 31.57 compared to the industry median of 30.17.
Inogen has no long-term debt and a current ratio of 7.35 versus the industry median of 2.71. GuruFocus assigned a financial strength rating of 9 out of 10 and a profitability and growth rating of 8 out of 10.
Wall Street issued an average target price of $97.20, reflecting nearly 50% upside from the closing price on Thursday.
The 14-day relative strength index of 36 suggests the stock is near oversold levels.
Shares of Madrigal Pharmaceuticals Inc. (MDGL, Financial) closed at $91.13 on Thursday. The stock has fallen 68% over the past 12 months through June 6, sending the share price below the 200-, 100- and 50-day simple moving average lines. The closing price on Thursday was 1.4% above the 52-week low of $89.83 and 253.3% below the 52-week high of $322.
The Conshohocken, Pennsylvania-based biotech company has a market capitalization of $1.41 billion and a price-book ratio of 2.96 versus the industry median of 4.1.
Madrigal Pharmaceuticals does not have any long-term debt and its current ratio is 45.75 versus the industry median of 4.46. GuruFocus assigned a financial strength rating of 8 out of 10 and a profitability and growth rating of 4 out of 10.
Wall Street issued an average target price of $215 for shares of Madrigal Pharmaceuticals. The estimate represents 136% upside from Thursday's closing price.
The 14-day relative strength index of 33 suggests the stock is approaching oversold levels.
Disclosure: I have no positions in any securities mentioned.
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