Falling knives are stocks whose share price has fallen more than 59% over the past year, drawing interest from investors as these securities can deliver huge rewards if they rebound.
The share price flop, however, could be the beginning of financial troubles, which may hurt the portfolio of an investor severely if the business goes bankrupt.
Investors can significantly reduce potential risks 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, suggesting they are expected to outperform either their industries or the entire market.
Scholar Rock
Shares of Scholar Rock Holding Corp. (SRRK, Financial) closed at $9.01 on Friday for a market capitalization of $267.42 million. The stock declined 61% over the past 12 months through Nov. 8.
The Cambridge, Massachusetts-based biopharmaceutical company, which focuses on developing treatments for serious diseases such as cancer and fibrosis, has a very low debt-equity ratio of 0.04 versus the industry median of 0.12.
GuruFocus assigned a rating of 5.8 out of 10 for the company's financial strength, but a very low rating of 1 out of 10 for its profitability.
The closing price on Friday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range is $8.09 to $30.
The price-book ratio is 1.68 compared to the industry median of 3.25.
The 14-day relative strength index of 44 suggests the stock is still far from oversold levels.
Wall Street issued a buy recommendation rating with an average target price of $31.67.
Fluidigm
Shares of Fluidigm Corp. (FLDM, Financial) closed at $2.33 per share on Friday for a market capitalization of $161.71 million. The share price tumbled 69% over the past 12 months through Nov. 8.
The San Francisco-based life sciences research technologies manufacturer has a moderate debt-equity ratio of 0.35 versus the industry median of 0.27.
GuruFocus assigned a rating of 5 out of 10 for the company's financial strength, but a low rating of 2 out of 10 for its profitability.
The closing price on Friday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range is $2.31 to $14.09.
The price-book ratio is 1.01 compared to the industry median of 3.65 and the price-sales ratio is 1.13 versus the industry median of 3.41.
The 14-day relative strength index of 19 suggests the stock is oversold.
Wall Street issued an overweight recommendation rating with an average target price of $8.30.
Disclosure: I have no positions in any securities mentioned.
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