Falling knives are companies whose share prices have fallen more than 59% over the past 12 months. Some investors buy these securities as they think they will gain impressive returns once the stocks have bounced back.
Investors are also aware that a sharp decline in the market value of the security can be an indicator of financial distress. And, if the financial distress turns into bankruptcy, they will incur a severe loss. The bankruptcy risk can, however, be reduced substantially if investors pick those falling knives with moderate to low debt-equity ratios.
Here are some results from a search.
Aerie Pharmaceuticals Inc. (NASDAQ:AERI) closed at $22.8 per share on Friday after tumbling 66% over the past 12 months through July 26, pushing the share price below the 200-, 100- and 50-day simple moving average lines. Friday's closing price was 6.2% off the 52-week low of $21.47 and 213.8% below the 52-week high of $71.55.
The Durham, North Carolina-based ophthalmic pharmaceutical company has a market capitalization of $1.05 billion. The price-book ratio is 5.37 versus the industry median of 2.23 and the price-sales ratio is 28.9 versus the industry median of 2.6.
Aerie Pharmaceuticals has no debt.
GuruFocus assigned a financial strength rating of 8 out of 10 and a profitability and growth rating of 3 out of 10.
Wall Street issued an average target price of $75.22, reflecting nearly 240% upside from the closing price on Friday. Analysts recommend buying the stock.
The 14-day relative strength index of 31 suggests the stock is near oversold levels.
Shares of IntriCon Corp. (NASDAQ:IIN) closed at $17.8 on Friday. The stock has plunged 68% over the past 12 months through July 26, sending the share price to below the 200-, 100- and 50-day simple moving average lines. The closing price on Friday was 5.9% above the 52-week low of $16.81 and 331.5% below the 52-week high of $76.80.
The Arden Hills, Minnesota-based distributor of body-worn devices in the United States and internationally has a market capitalization of $155.52 million, a price-book ratio of 1.79 versus the industry median of 1.47 and a price-sales ratio of 1.31 compared to the industry median of 0.98. The price-earnings ratio is 27.81 versus the industry median of 16.58.
IntriCon Corp. has close to zero total debt-equity ratio versus the industry median of 35%. GuruFocus assigned a financial strength rating of 8 out of 10 and a profitability and growth rating of 6 out of 10.
Wall Street issued an average target price of $34 for shares of IntriCon Corp., representing 91% upside from Friday's closing price. Analysts suggest buying the stock.
The 14-day relative strength index of 34 suggests the stock is approaching oversold levels.
Disclosure: I have no positions in any securities mentioned.
This article first appeared on GuruFocus.
- Warning! GuruFocus has detected 2 Warning Signs with AERI. Click here to check it out.
- AERI 15-Year Financial Data
- The intrinsic value of AERI
- Peter Lynch Chart of AERI