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. Revenues dry 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. Sure it happens, but here we’re seeking companies that have all but given up the ghost.
For help, we’ll turn to the clever coroners at our 150,000-strong Motley Fool CAPS community, where members give the thumbs-up or thumbs-down to some 5,400 stocks. We’ve unearthed a handful of stocks that look like they might be headed 6 feet under based on their one-star ratings, but we'll head over to CAPS to measure opinions on a company's prospects.
Then we’ll palpate their pulse with some quick tests for liquidity -- who knows, maybe we'll still find signs of life! The current ratio and quick ratio (also called the “acid test” ratio) give us an idea of a company’s ability to pay its bills, and the Altman Z-Score 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 cryptkeeper is waiting.
Here’s today’s list. The question is, with our primary screen being those stocks that CAPS investors have given one-star status to, are these companies only mostly dead, or have they already given up the ghost?
|
Stock
|
CAPS Rating
(out of 5)
|
Current Ratio
|
Acid-Test Ratio
|
Altman Z-Score
|
Recent Price
|
|
Accelrys (Nasdaq: ACCL ) ^
|
*
|
7.8
|
7.8
|
0.68
|
$6.24
|
|
COMSYS IT Partners
|
*
|
1.2
|
1.2
|
2.32
|
$17.53
|
|
Elizabeth Arden (Nasdaq: RDEN )
|
*
|
2.1
|
1.0
|
2.57
|
$18.13
|
|
Federal-Mogul (Nasdaq: FDML )
|
*
|
2.3
|
1.4
|
1.06
|
$16.40
|
|
GSI Commerce (Nasdaq: GSIC )
|
*
|
1.1
|
0.8
|
2.28
|
$25.37
|
Sources: Motley Fool CAPS and Capital IQ, a division of Standard & Poor's.
Data as of 2/16/10.
^Current and acid test ratios from 12/31/09, Alt Z-score as of 9/30/09.
We obviously don’t know if these companies are headed 6 feet under, so don’t short them based on their appearance here. Moreover, some companies, like software makers and financials, don’t neatly fit into the Altman Z-Score scale. Yet like the mythological figure of Charon conducting souls across the River Styx to the netherworld, we'll use the CAPS community as our guide to determine whether these stocks are destined to seriously underperform the market.
Whistling past the graveyard
With just less than 1% of the European fragrance market in its fold, cosmetics maker Elizabeth Arden is looking to expand its share overseas as a means of putting greater distance between it and any wolf at the door. Sales and profits were significantly better than what analysts had anticipated, because of its decision to sell more of its fragrances through retail stores like Wal-Mart Stores (NYSE: WMT ) .
While the economy is still fragile and consumers remain reluctant to part with their money to any great degree, Arden's shares have been buoyed by a sweet-smelling Christmas season. That was underscored when rival Estee Lauder (NYSE: EL ) bolstered its full-year forecast, citing a similar happy holiday.
Even as Elizabeth Arden looks like it is recovering enough to stand on its own two feet, some investors remain wary that its performance will continue to be exemplary. CAPS member ElleRB, for instance, finds a lack of "real elegance" in its operations to be a deciding factor against it:
It seems to me that Elizabeth Arden is creeping downhill. During a recent visit to one of the spas, I was disappointed by chintzy materials, cheap products, and sub-par service. Without real elegance, luxury, or quality, I worry that the company will lost the cache necessary to keep this stock on an upward swing.
While 72% of the CAPS members rating the cosmetics diva have rated it to outperform the market, the one-star rating suggests they think there are better places for your money.
At 37 times earnings, its shares trade at about twice as much as Revlon (NYSE: REV ) . However, with twice the expected growth rate as its rival, there might be a decisive edge for Arden. You can head over to the Elizabeth Arden CAPS page and let us know whether the company has the heels to succeed.
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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