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

With that said, let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at Nasdaq.com:

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. Intriguingly, though, we do have one player fave in the bunch: shoemeister DSW, which gets the thumbs-up from 96% of our very best investors -- the CAPS All-Stars.

What good could they find in a retailer that's underperformed the S&P 500 by 34 points over the past 52 weeks? Let's find out.

The bull case for DSW

• Letting valuation be his guide, harrison5046 likes that DSW "trades at low multiple compared to cash flow and no debt."
• Meanwhile, pnshark takes a more touchy-feely approach to the company, yet it's one that the master investors of our time endorse: "Peter Lynch always said to take a walk around the mall -- check out which stores are crowded -- this place is always PACKED."
• Finally, Uresh highlights the short-squeeze strategy: "Heavily shorted. IT would take about 20 trading sessions to bring back the shorts. If they beat [the analysts] this quarter the shorts will have to buy back. Thus the stock should see some good growth over the next several months."

I must admit that I'm not quite as enthusiastic about the stock as are our fellow investors. Trailing free cash flow at DSW leaves much to be desired -- and leaves the price-to-free cash flow ratio sitting north of 40 at present. This is a pretty rich valuation, even with analysts predicting DSW will grow its profits at 20% per year over the next five years.

That said, the firm is spending beaucoup bucks on expanding its store base, and if "expansion capital expenditures" were taken out of the picture, I suspect that we'd find the stock trading closer to what its P/E multiple suggests: 18 times earnings, and priced favorably against the expected 20% growth. I think DSW is closer to a "hold" than a "buy," but I don't think the DSW bulls are entirely off base on this one. It does have potential.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about DSW -- or even what the other CAPS players are saying. We also want to hear your thoughts on the company. If you've got an opinion, we've got a place for you to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.