Although shares of Allied Esports Entertainment Inc (NASDAQ:AESE) and The Lovesac Co (NASDAQ:LOVE) have fallen more than 59% over the past 52 weeks, Wall Street sell-side analysts have recommended to buy them, earning them the name "falling knives."
Holding shares of falling knives implies a remarkable risk of loss, as the share price tumble could indicate the presence of permanent financial issues. Investors can reduce the investment risk by only choosing falling knives whose balance sheets have lower debt.
Thus, investors may be interested in the following falling knives, as they have moderate-to-low debt-to-equity ratios.
Allied Esports Entertainment Inc
Shares of Allied Esports Entertainment were trading at a price of $1.65 per unit at close on Tuesday for a market capitalization of $41.56 million. The stock price tumbled 84% over the past 12 months through May 5.
Currently, the share price represents a 70% discount to the middle point of the 52-week range of $0.40 to $10.81. The 14-day relative strength index of 42 tells us that the share price is still trading far from oversold levels, despite its sharp depreciation.
Allied Esports Entertainment is an Irvine, California-based esports and entertainment company. The company has a moderate debt-equity ratio of 0.31, which is on par with the industry median. The Altman Z-score of -1.71, which is less than 1.81, indicates that Allied Esports could be in distress zones. However, the Piotroski F-Score of 4 out of 9 suggests that the company is financially stable.
Wall Street sell-side analysts predict the share price will rebound up to a $4.50 target, reflecting a 173% upside from Tuesday's closing price.
The Lovesac Co
Shares of The Lovesac Co were trading at a price of $13.19 per unit at close on May 5 for a market capitalization of $190.89 million. The stock price fell by 70% over the past 12 months through May 5.
Currently, the share price trades at a 48% discount to the middle point of the 52-week range of $4 to $46.79. The 14-day relative strength index of 68 indicates that the share price is still far from oversold levels, despite the plunge.
The Lovesac is a Stamford, Connecticut-based manufacturer and seller of foam filled furnitures, sectional couches and accessories for fixing. The Lovesac is a debt-free company.
A Piotroski F-Score of 3 out of 9 suggests the presence of poor business operation, but an Altman Z-Score of 4.49 (greater than 2.99) indicates that the business is unlikely to go bankrupt.
Wall Street sell-side analysts forecast that the share price of The Lovesac will rebound up to an $18.75 target, which reflects a 42.2% upside from Tuesday's closing price.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.