Falling knives are companies whose share prices have declined more than 59% over the past 12 months. Investments in these companies are based on expectations that the stock will bounce back, rewarding shareholders with large positive returns.
The tumble in the share price could signal the beginning of financial distress, which may hurt an investor’s portfolio gravely if the business fails. However, investors can significantly reduce the risk if they select falling knives with moderate to low debt-equity ratios.
Along with a moderate to low financial burden, the following securities have recommendation ratings from Wall Street analysts, which increase investors’ expectations for stocks that will perform well in the coming months.
TuanChe
Shares of TuanChe Ltd. (TC, Financial) closed at $2.5 on Friday for a market capitalization of $180.8 million. The stock declined 64.3% over the past 12 months through Nov. 22.
TuanChe is based in Beijing and operates an automotive marketplace in China. The company doesn’t have debt and is in the safe zone according to the Altman Z-Score, which is used to forecast the likelihood of bankruptcy.
GuruFocus assigned a high rating of 8.2 out of 10 for the company's financial strength, but a low rating of 3.1 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 was $2.01 to $7.8.
The price-book ratio is 2.45 compared to the industry median of 3.04 and the price-sales ratio is 1.8 versus the industry median of 2.94.
The 14-day relative strength index of 44 suggests the stock is neither oversold nor overbought.
Wall Street issued a moderate buy recommendation rating with an average target price of $8. The rating is a mean of two buys, zero holds and zero sells.
AnaptysBio
Shares of AnaptysBio Inc. (ANAB, Financial) closed at $12.02 per share on Friday for a market capitalization of $326.14 million. The stock declined 84.3% over the past 12 months through Nov. 22.
The San Diego, California-based biotech company focuses on developing antibodies against inflammation. It has an extremely low debt-equity ratio of 0.01 versus the industry median of 0.11. According to the Altman Z-Score, the company is in the safe zone.
GuruFocus assigned a positive rating of 5 out of 10 for the company's financial strength, but a low rating of 3 out of 10 for its profitability. So investors must be careful with this stock.
The closing price on Friday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $10 to $83.10.
The price-book ratio is 0.76 compared to the industry median of 3.29, and the price-sales ratio is 64.97 versus the industry median of 9.96.
The 14-day relative strength index of 21 suggests the stock is oversold.
Wall Street issued a hold recommendation rating with an average target price of $22.57, which implies a nearly 88% upside for the stock within 52 weeks. The hold recommendation rating is an average of one buy, six holds and one sell.
Disclosure: I have no positions in any securities mentioned.
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