In my recurring Fool column, "Get Ready for the Bounce," we search for future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a fallen stock to bounce back?
Nope. Sometimes stocks fall hard, in far less time than a year. And like superballs dropped from the balcony, the harder they fall, the higher they bounce. Today, we'll look at a few equities that have suffered dramatic drops over the past week. With a little help from the 170,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:
How far From 52-Week High?
(out of 5)
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. The 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
There's no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. The question is ... why?
I mean, in some cases, the reason for a stock's decline is obvious (even painfully so). At Tata Motors, for example, we learned last week that sales of the company's marquee Nano car have fallen off a cliff from their July high of 9,000 units. In November, customers drove a bare 509 Nanos off Tata's car lots. Clearly, having the home-court advantage doesn't guarantee Tata a win over foreign carmakers operating in the country, which include such giants as Nissan, Volkswagen, and Ford. And the competition's only getting stiffer, as Toyota
But as obvious as Tata's troubles may be, we've seen no equivalent bad news break on any of the other companies on today's list. Yongye has its perpetual problem generating cash from its business, and Elan faces stiff competition in the multiple sclerosis space. General Maritime, like all oil shippers, will struggle till the global economy improves and energy demand picks up, and Almost Family has that federal investigation into home-nursing industry billing practices hanging over it. Each of these companies has "issues" to be sure -- but they're issues we already know about. There's nothing new to explain why the stocks' values dropped last week. And Fools, this may spell opportunity.
The bull case for Almost Family
Nothing warms a value investor's heart more than seeing a cheap stock get cheaper for no reason. Like free burrito day at Chipotle, or a half-off sale at Macy's, you don't complain when a good deal is offered you -- you just jump on it. Personally, when I scan the list up above, I see a very good deal indeed at home-health provider Almost Family -- and I'm not the only one.
CAPS member thenatural24 wrote last week that the stock has become "Very undervalued due to investigation of companies that receive revenue from Medicare. While that's certainly a concern, there's no reason to believe they are at fault as this investigation is ongoing at all these companies. Great cash flow, and strong earnings make this a great value."
All-Star investor alars79 adds that "Americans are continuing to get older and living longer and healthier lives. Baby boomers are too stubborn to be whisked away to some nursing home, and home health care services allow them to keep some dignity and autonomy. 10 PE with long-term forecasted 15% EPS make AFAM a good bet in this industry."
Good, better, best
And maybe even a better bet than alars79 thinks. While a 10.3-times-earnings valuation is plenty cheap in and of itself, the fact is that if you dig into Almost Family's cash flow statements, what you'll discover is that the stock is even cheaper than that. With trailing free cash flow of nearly $35 million, and an enterprise value of $286 million, this business actually retails for the low, low price of just 8.2 times free cash flow -- a number just half as big as the growth rate analysts expect it to achieve over the next five years (17.5%).
Now, I don't mean to pooh-pooh the federal investigation -- it's a significant risk to be sure, but it's not, to our knowledge, targeted at Almost Family in particular. Until we know that this particular company is in the feds' sights, and furthermore, that it's actually done something wrong to warrant being in the crosshairs, I have to say that Almost Family's cheapness outweighs its risks. In short, this superball has real bounceability.
But that's just my opinion -- I could be wrong. If you have a different opinion of Almost Family, here's your chance to tell us about it. Click over to Motley Fool CAPS now and sound off.
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. 639 out of more than 170,000 members. The Fool has a disclosure policy.
Chipotle Mexican Grill and Elan are Motley Fool Rule Breakers choices. Ford Motor is a Motley Fool Stock Advisor selection. Yongye International is a Motley Fool Global Gains recommendation. Chipotle Mexican Grill is a Motley Fool Hidden Gems pick. The Fool owns shares of Almost Family, Chipotle Mexican Grill, and Yongye International.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.