Are you interested in low-priced stocks with healthy accounting behavior? One approach is to look into inventory trends -- doing so provides an interest ing insight into the health of a company's sales trends.
Low-priced stocks can be priced the way they are for many reasons. The specific reason is very important when considering different stocks.
A stock's price may be low because of company policy, such as a recent stock split or a recent IPO price. Prices can also be low because of bad trading performance. The latter is called a "value trap," in which a stock's low price appears attractive but indicates lack of value.
To help avoid stocks that present "value traps" we decided to screen a universe of stocks trading under $3 for those with encouraging inventory trends.
For our purposes, a positive inventory trend implies growth in quarterly revenue is outpacing growth in quarterly inventory year-over-year. We also screened for companies with quarterly inventory decreasing as a percent of current assets.
To understand why these trends are positive, think of why the opposite trends would be negative. If revenue were growing slower than inventory, it may indicate that the company is having trouble selling its inventory -- although this could just indicate inventory building or a change in sales policies.
The following is a list of stocks priced under $3 with positive inventory trends.
Do you think these names are attractively priced? (Click here to access free, interactive tools to analyze these ideas.)
1. BPZ Resources
2. Star Scientific
3. Mueller Water Products
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. List compiled by Eben Esterhuizen, CFA.
Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Accounting data sourced from Google Finance.
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