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. Here, we're seeking companies that have all but given up the ghost.

For help, we'll turn to our Motley Fool CAPS community, where 150,000 members give the thumbs-up or thumbs-down to nearly 5,400 stocks. We've unearthed a handful of stocks that look like they might be faltering, based on their one-star ratings, but we'll head over to CAPS to measure the opinions on a company's prospects.

Then we'll run some quick tests for liquidity -- who knows, maybe we'll find some 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 filing for bankruptcy protection. Companies scoring 3.00 and above are considered safe, those between 2.70 and 2.99 are "yellow flags," those between 1.80 and 2.70 have a good chance of filing for bankruptcy within two years, and those with scores below 1.80 are even worse off.

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

012 Smile.Communications (NASDAQ:SMLC)

*

1.3

1.3

2.51

$28.60

Alphatec Holdings (NASDAQ:ATEC)

*

1.8

0.9

1.68

$5.17

Perry Ellis (NASDAQ:PERY)

*

3.4

1.8

2.80

$19.97

Switch and Data (NASDAQ:SDXC)

*

0.9

0.8

1.34

$17.98

Valhi (NYSE:VHI)

*

1.7

0.9

0.87

$18.78

Sources: Motley Fool CAPS; Capital IQ (a division of Standard & Poor's).

We obviously don't know where these companies are headed, 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. Let's take a closer look at just one of the companies.

Whistling past the graveyard
Despite operating across a broad cross section of industries, Valhi has managed to record annual losses for two years and is on track to do it again for 2009. It largest segment produces and markets the white pigment titanium oxide through its Kronos Worldwide (NYSE:KRO) subsidiary, accounting for almost 80% of its total revenues. The division recorded operating losses there for the past two quarters, though historically, pigment production has been one of its most profitable lines.

Much of Valhi's success with titanium oxide hinges on its average selling price, and the industry has undergone "capacity rationalization," according to paint manufacturer Sherwin-Williams (NYSE:SHW). What that means is lower production and higher prices, something that has trickled down to Sherwin-Williams and other manufacturers, which rely heavily on the pigment for their products and have grappled with rising prices for raw materials.

Kronos Worldwide has been affected by the upheaval and fell out of compliance with some of the terms on its loans last year, so it had to get waivers from its lenders. Then it had to renegotiate its credit facility, which at least had the benefit of temporarily suspending the covenants for which it was out of compliance.

CAPS members seem to think that while Valhi may not be filing for bankruptcy protection anytime soon, it doesn't appear headed for market outperformance, either. More than 37% of those rating the company believe it will underperform the broad market averages: JackCaps sees its debt burden as too heavy to allow it any maneuverability.

[Valhi] had negative earnings for 2007, 2008 and probably will also for 2009. Revenues have been a flat $1.5B during these first two years and 2009 should come in at about $1.2B. They also carry about $1B in debt. [Valhi] has trailed the S&P 500 in terms of price performance, but [Valhi's] recent rise has brought it close to even with the S&P. I project that [Valhi] will revert to its norm and underperform against the S&P 500 for 2010.

Head over to the Valhi CAPS page and tell us whether you think it will succeed or fail.

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 what you think.

Sherwin-Williams is a Motley Fool Stock Advisor recommendation.

Fool contributor Rich Duprey does not have a financial interest in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool's disclosure policy remains vibrant and full of life.