We've all heard of the "death rattle," the last gasp from a lost soul's lungs. Sometimes, we seem to hear it from the companies in which we invest. Revenue dries up. Margins contract. Profits evaporate. All these signs suggest that their condition is worsening -- a financial death rattle, if you will.
Stocks in sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others will make a full recovery. Here, though, we're seeking companies that have all but given up the ghost.
For help, we'll turn to the clever coroners at our 115,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to more than 5,400 stocks. Data shows that newly minted five-star stocks offer the best opportunities for investors, while the lowest-rated companies fare the worst. We've unearthed a handful of stocks that look like they might be headed six feet under. You might want to avoid these, as they've garnered no more than the lowest one-star rating.
Then we'll check out some quick tests for liquidity -- the current ratio and quick ratio (also called the "acid test" ratio) -- which give us an idea of a company's ability to pay its bills, and the Altman Z-Score, which suggests companies in danger of bankruptcy. Companies scoring 3.00 and above are considered safe, between 2.70 and 2.99 are "yellow flags," between 1.80 and 2.70 have a good chance of going bankrupt within two years, and those with scores below 1.80 mean the crypt-keeper is waiting.
Here's today's list. The question is, are these companies only mostly dead, or have they already given up the ghost?
|
Stock
|
Current Ratio
|
Acid-Test Ratio
|
Altman Z-Score
|
|
AFC Enterprises
|
0.8
|
0.3
|
1.13
|
|
Bluegreen (NYSE: BXG )
|
7.4
|
1.6
|
2.23
|
|
C&D Technologies (NYSE: CHP )
|
2.4
|
1.1
|
2.37
|
|
Cardtronics (Nasdaq: CATM )
|
0.5
|
0.2
|
1.09
|
|
NPS Pharmaceuticals (Nasdaq: NPSP )
|
2.9
|
2.6
|
(4.04)
|
Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.
We obviously don't know if these companies are headed six feet under, so don't short them based on their appearance here. Moreover, some companies don't neatly fit into the Altman Z-Score scale. Yet our primary screen is for those stocks that CAPS investors have marked down to one-star status, meaning they are possibly destined to seriously underperform the market.
A market disconnect
Top-rated CAPS All-Star zzlangerhans reported back in June that he didn't like NPS Pharmaceuticals' pipeline and that the therapies it does have in clinical trials haven't performed well. While NPS reported a surprise profit last quarter due to licensing and royalty fees received that caused its shares to surge, it also noted just last week that GlaxoSmithKline (NYSE: GSK ) backed out of a partnership on another drug because a lack of efficacy. zzlangerhans said:
I'm back as promised to throw down a new red thumb on NPS, who have inexplicably managed to increase their market cap over 200M despite having a terrible pipeline and no positive catalysts whatsoever that I can determine. Mentions of Preos have completely disappeared from the quarterly statements, and I am at a loss to figure out what has happened to their phase III trial which should have completed enrollment months ago. The Gattex trial had a lousy result and the new phase III trial hasn't begun yet. There are very few companies this lousy which have managed to escape the biotech sector decline (Nymox comes to mind), so it seems like their days must be numbered.
On a more promising note, it's possible that ATM operator Cardtronics postponed its day of doom by making a deal with 7-Eleven. The company's Allpoint Network division will add some 5,500 surcharge-free ATMs, similar to the deals it has in place with retailers like Target (NYSE: TGT ) and CVS Caremark (NYSE: CVS ) . Although CAPS All-Star CyberPawn feels international expansion is the key to growth, he points to Cardtronics' acquisitions as being helpful:
While the U.S. ATM market is tight, Cardtronics still grows domestically by making some good acquisitions in a fragmented market.
They also made good deals on the international scene. To rectify just a few points stated by another poster:
BankMachine, the UK acquisition grew by more than 30% since bought due to a better market (more cash vs cards being used compared to US, as well as much higher transaction volume per ATM)
The Mexican acquisition went very well for Cardtronics-from a small unprofitable outfit to someting more than double the size and profitable. Cardtronics is still the ONLY independant ATM owner in Mexico.
Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they be resurrected to stalk the markets once again? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.
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