Falling knives are companies whose share prices have declined more than 59% over the last 12 months. Investments in these companies are based on expectations that the share prices will bounce back so strongly that they generate large returns.
Such deep depreciation hints at a remarkable risk of loss, as it could signal that the companies are having serious financial issues. However, investors can significantly lower the risk if they pick falling knives with moderate to low debt-equity ratios.
Together with a moderate to low financial burden, the following securities have received positive recommendation ratings on Wall Street, indicating they are forecasted to outperform either their industries or the overall market.
KLX Energy Services
Shares of KLX Energy Services Holdings Inc. (KLXE, Financial) closed at $8.31 on Thursday for a market capitalization of $196.15 million. The stock declined 75% over the last 12 months through Oct. 10.
The Wellington, Florida-based provider of oil and gas equipment and services has a moderate debt-equity ratio of 0.61 versus the industry median of 0.4.
GuruFocus assigned a rating of 5.3 out of 10 for the company's financial strength and a rating of 1 out of 10 for its profitability.
The closing price on Thursday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $8.22 to $36.13.
The price-book ratio is 0.46 compared to the industry median of 0.91 and the enterprise value-Ebitda ratio is 4.92 versus the industry median of 5.44.
The 14-day relative strength index of 30 suggests the stock is approaching oversold levels.
Wall Street issued an overweight recommendation rating with an average target price of $14.13.
ViewRay
Shares of ViewRay Inc. (VRAY, Financial) closed at $2.31 per share on Thursday for a market capitalization of $227.49 million. The stock declined 74% over the past 12 months through Oct. 10.
The Oakwood, Ohio-based designer and marketer of systems for radiation therapy has a moderate debt-equity ratio of 0.56 versus the industry median of 0.22.
GuruFocus assigned a rating of 4.2 out of 10 for the company's financial strength and rating of 2 out of 10 for its profitability.
The closing price on Thursday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $2.12 to $10.02.
The price-books ratio is 1.77 compared to the industry median of 2.82 and the price-sales ratio is 2.47 versus the industry median of 3.16.
The 14-day relative strength index of 19 suggests the stock is oversold.
Wall Street issued a buy recommendation rating with an average target price of $6.80.
Disclosure: I have no positions in any securities mentioned.
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