Get Ready for the Bounce

"Don't catch a falling knife." Thus commandeth the old saw (to mix a cutlery metaphor).

But if people weren't tempted to catch cutlery in the first place, there'd be no need for this little bit of investing wisdom, would there? The idea of buying a former highflier at a discount price certainly has its attractions. The trick, of course, is to increase the odds that when you make your grab, you're catching haft, not blade. That's where we come in.

In The Motley Fool's continuing effort to keep your investing dollars safe, we once again assume our position beneath Mr. Market's silverware drawer. As the knives plummet, we'll measure who's fallen farthest. Then we'll head over to Motley Fool CAPS and ask which of these stocks Foolish investors think are ready to rebound to new highs -- if any.

With that said, let's meet today's list of contenders, drawn from the latest "52-week lows list" at MSN Money:

Knives and knaves
Once again, our list proves the converse of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates right quick. Thus, today's list is chock-full of companies that CAPS investors rate as likely underperformers. We've got two exceptions, however, and the top-rated exception, at least, should be familiar to Motley Fool Pay Dirt subscribers: online payment facilitator Optimal Group.   

The company is suffering mightily at the hands of U.S. legislators, who are cracking down on businesses that service the online gambling industry and passed an Unlawful Internet Gambling Enforcement Act (UIGEA) late last year. But CAPS investors ain't scared, not one little bit. Roughly 98% of CAPS players polled still give Optimal the thumbs-up. Let's find out why.

The bull case for Optimal Group

• harrison5046 sums up the bull thesis in one word -- "CHEAP" -- then goes on to add a few more choice words, in staccato fashion: "good cash flow. no debt. takeover candidate given how cheap it is."
• metoo105 points out that Optimal Group "trades just above its book value. Its going concern may be somewhat constrained growthwise, but I think not actually ... As for the collapse of Internet gambling in the US. A couple things to note. First is that only 40% of the market was in the US. ... Second, the WTO verdict is now in, and * surprise * the US was found to be in violation."
• Granted, the stock trades for a pricey 68 P/E, but another All-Star, Persuter this time, points out: "Their high P/E is an anomaly, they simply have just become profitable so they had very small earnings. As they grow their earnings, their P/E will drop drastically and the proper valuation of the stock will become more obvious to traders and analysts."

Time to chime in
Indeed, if you take that 68 P/E and divide it by the analysts' growth estimate, you get a nice, round PEG ratio of 1.0. Hmm. Did I mention that growth is projected at 68% per annum over the next five years?

Bears might think that is just too exact a number for coincidence. And a bit optimistic -- usually, when you find a firm expected to grow earnings at that kind of speed, its name begins with "G," ends in "E," and has the letters "OOGL" in the middle. You'll also note that the "analysts' estimate" is actually just "one analyst's estimate," as Yahoo! Finance only cites one Wall Street Wise Man as following this stock.

So what do you think? Is there a rose-color-bespectacled analyst out there somewhere, gaming the estimates on this gaming stock? Or is Optimal Group as cheap as its 0.8 price-to-book value ratio appears? Tell us what you think on CAPS.  

Or if you'd like more information before deciding, you're welcome to sign up for Motley Fool Pay Dirt risk-free for six months, to read all about why we like Optimal Group.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 610 out of more than 29,000 raters. The Fool has a disclosure policy.