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Alberto Abaterusso
Alberto Abaterusso
Articles (2542) 

2 Falling Knives for Investors to Consider

These companies have a low financial burden

December 03, 2019 | About:

When shares of companies lose more than 59% of their value in a year, they are called falling knives. These stocks spark the interest of some investors who believe they can make a considerable return following an expected rebound.

This category of investors is also aware that investing in falling knives carries a remarkable risk of a severe loss because the quick detioration in the stock is usually a sign of financial trouble for the company. But investors can reduce such risk if they pick stocks with a moderate to low financial burden, namely, a debt-equity ratio below 0.50.

Having said that, investors should consider the falling knives that have also received an overweight recommendation rating from Wall Street sell-side analysts, which increases expectations for unbelievable returns as the rating indicates these stocks will outperform.

Savara

Shares of Savara Inc. (NASDAQ:SVRA) closed at $1.33 on Monday for a market capitalization of $54.81 million. The stock declined 84% over the last 12 months through Dec. 2.

The Austin, Texas-based biotech developer of orphan drugs for lung diseases has a debt-equity ratio of 0.24, which is above the industry median of 0.11.

GuruFocus assigned a moderate rating of 5.2 out of 10 for the company's financial strength, but a very low rating of 1 out of 10 for its profitability. Thus, investors must be careful with this stock.

The closing price on Monday was below the 200- and 100-day simple moving average lines, but still above the 50-day line. The 52-week range was 69 cents to $11.96.

The price-book ratio is 0.51 compared to the industry median of 3.63.

The 14-day relative strength index of 69 suggests the stock is still far from oversold levels.

Wall Street issued an overweight recommendation rating with an average target price of $5.25, reflecting 304% upside from Monday’s closing share price.

Intelsat

Shares of Intelsat S.A. (I) closed at $6.24 per share on Monday for a market capitalization of $879.84 million. The stock declined 73% over the past 12 months through Dec. 2.

The Luxemburg-based provider of satellite communication services has a debt-equity ratio of -2.96 versus the industry median of 0.58.

GuruFocus assigned a low rating of 2 out of 10 for the company's financial strength, but a moderate rating of 5 out of 10 for its profitability.

The closing price on Monday was below the 200-, 100- and 50-day simple moving average lines. The 52-week range was $5.55 to $27.29.

The price-sales ratio is 0.42 versus the industry median of 1.41.

The 14-day relative strength index of 19 suggests the stock is oversold.

Wall Street sell-side analysts issued an overweight recommendation rating and have established an average target price of $20.50, reflecting 230% upside from Monday’s closing price.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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