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2 Falling Knives to Catch

GuruFocus.com
·3 min read

- By Alberto Abaterusso

Wall Street recommends buying shares of PHX Minerals Inc. (NYSE:PHX) and Summit Wireless Technologies Inc. (NASDAQ:WISA), which is in disagreement with the past year performance as these holdings have lost more than 59% over the prior 52 weeks through Friday, Oct. 30.

As a result of the sharp decline in the share price and positive recommendation ratings, these stocks are known as "falling knives."


The acquisition of falling knives is the investment strategy of those traders who, trying to catch these holdings at prices near to their lowest levels, target impressive capital gains out of their assets following an expected strong share price rebound. These investors should also be aware they are taking a high risk with falling knives as the slump into the share price could be a signal of permanent financial issues.

PHX Minerals

PHX Minerals is an Oklahoma City-based oil and natural gas producer in the U.S. The stock was trading around $1.5 per share at close on Friday following a nearly 90% decline in the share price over the past 52 weeks.

2 Falling Knives to Catch
2 Falling Knives to Catch

The stock has a market capitalization of $33.48 million, a 52-week range of $1.36 to $15.29 and a 14-day relative strength index of 42, which indicates the stock is still trading far from oversold levels despite the downturn.

GuruFocus assigned a low rating of 3 out of 10 for the company's financial strength, driven by a Piotroski F-Score of 3 (out of 9) and Altman Z-score of -1.88. These two ratios are indicative of possible insolvency within two years. However, a debt-equity ratio of 0.53 (though higher than the industry median of 0.47) means that the balance sheet is still moderately leveraged.

In addition to a moderate buy recommendation rating, the stock has an average price target of $2.70 per share on Wall Street, reflecting 80% upside from Friday's closing price.

Summit Wireless Technologies

Shares of San Jose, California-based developer of wireless audio semiconductors for the U.S. and international home entertainment and professional audio markets were trading at around $1.98 per unit at close on Friday following a decline of 88.6% over the past 52 weeks.

2 Falling Knives to Catch
2 Falling Knives to Catch

The stock has a market capitalization of $15.49 million, a 52-week range of $1.72 to $19.8 and a 14-day relative strength index of 43, with the last indicator signaling that the share price is still far from oversold levels despite the tumble.

GuruFocus assigned a moderate score of 4 out of 10 for the financial strength of the company.

A Piotroski F-Score of 3 out of 9 and an Altman Z-Score of -15.91 are not excluding the possibility of bankruptcy within two years. However, current financial conditions still seem robust as the cash-debt ratio is 14.27, ranking higher than 78% of 819 companies operating in the semiconductors industry. The debt-equity ratio of 0.07 indicates a low leveraged balance sheet. The industry has a median of 0.29 for the debt-equity ratio.

In addition to a moderate buy recommendation rating, the stock has an average target price of $5 per share on Wall Street, which represents 152.5% upside from Friday's closing price.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.