5 Deathbed Stocks

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 the sick bay
Don't assume that all such companies are goners. Some will barely cling to life, while others make a full recovery. Here we're seeking companies that have all but given up the ghost.

For help, we'll turn to the clever coroners at our 95,000-strong Motley Fool CAPS community, where players give the thumbs-up or thumbs-down to more than 5,500 stocks. The first year of collecting data suggests that CAPS' highest-rated stocks performed best, while its lowest-rated companies fared worst. We've unearthed a handful of stocks that look like they might be headed 6 feet under, having recently dropped from two stars to the lowest one-star rating.

We'll also check out some quick tests for liquidity -- the current ratio and the quick ratio (also called the "acid-test" ratio) -- which give us an idea of a company's ability to pay its bills. A current ratio above 1.5 and a quick ratio north of 1.0 mean it's able to meet its short-term operating needs. But watch out! Too high a value might mean the company is hoarding assets that could be better used elsewhere.

Here's today's list. The question is, are these companies only mostly dead, or have they truly given up the ghost?

You might be tempted to think that some of these stocks need the ICU rather than a cemetery plot. Moreover, not every type of company can be diagnosed with these quick tests. Financial institutions, for example, don't get measured by such ratios. Even so, stocks that CAPS investors have marked down to one star are possibly destined to seriously underperform the market in the future.

A cheesy outcome
It's hard to imagine that the entertainment palace for the preteen set hasn't been able to come up smelling like roses, rather than a rat. Yet CEC Entertainment, the operator of the Chuck E. Cheese food-and-game zones, has become the victim of rising food and fuel costs and the uncertainty of consumer spending. Same-store sales at company stores dropped 1.4% in 2007, while revenue increased by less than 2%, only because it added new stores.

Cheap food, cheap prizes, and tons of fun somehow haven't added up to a winning combination just yet, though it seems almost every parent has at some time or another hosted or been invited to a Chuck E. Cheese party. For example, CAPS All-Star fcharles81 notes in a recent pitch that he's taken his children there, but finds the concept tired:

I like to take my kids to the place just to get out sometimes, but the food isn't all that great. Unless they can [come] up with something new in their [restaurants], it gets old. I won't say they'll go bankrupt, but they won't Outperform.

Tart-tongued TMFHollywoodDan has a more acerbic assessment of the "mini Vegas" aura cast over the restaurants:

Also, the whole idea of this company-subjecting kids to a mini Vegas atmosphere and turning them into mindless spending machines in search of poo-toys is as 100% unFoolish as unFoolish can be. While they're at it, this bad joke of a business should serve the kid alcohol and cigars too. We're ... not a nation of obese debt ridden walruses for nothing, you know. Pass the clothes pin, mamma, this one is a stinker.

Rattling the cage
Are these companies doomed to drag their investors into an underworld of underperformance? Or will they recover to shine again? On Motley Fool CAPS, you have the power to tell your fellow investors just how you feel. Sign up today, absolutely free, and let us know whether you think the Grim Reaper's at the door.