"'Don't catch a falling knife' ... The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade."

That's the thesis of my recurring Fool column "Get Ready for the Bounce," in which we search among the wreckage of Mr. Market's overturned cutlery drawer, hoping to find future winners in a pile of 52-week losers. But do we really need to sit around for a whole year, waiting for a potential bouncer?

I say nay. Sometimes, stocks fall far in far less time than a year -- and like a superball dropped from the balcony, the harder they fall, the higher they bounce. Today, we're going to look at a few equities that've suffered dramatic drops over the past week. With a little help from the 145,000 members of Motley Fool CAPS, we hope to find an opportunity or two for you:


How far from 52-week high?

Recent Price

CAPS Rating (out of 5)

Natus Medical (NASDAQ:BABY)




Vodafone  (NYSE:VOD)




Mylan (NYSE:MYL)




GameStop  (NYSE:GME)








Companies are selected by screening on finviz.com for abrupt 4% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
If you own any of the five stocks named above, chances are you weren't a happy camper last week. You can blame Mylan's dip on a Goldman Sachs downgrade of the generic drug sector, while MetroPCS fizzled when Soleil warned that Verizon (NYSE:VZ) and Sprint Nextel (NYSE:S) are stealing share -- and advised investors to dump the shares. And of course, GameStop suffered its very own personal blue screen of death when it warned on earnings Thursday.

But while those declines were easily explained, I don't see any immediately apparent cause for the declines at Vodafone ... or at today's top-rated stock:

Natus Medical
CAPS members' reasons to like at Natus begin with its cute-as-a-button ticker symbol, BABY, but they don't end there. Although a relatively small player in a medical field dominated by giants like Johnson & Johnson (NYSE:JNJ) and Cardinal Health, Natus dominates its chosen niche of equipment designed to diagnose common ailments in newborn infants. It's also growing steadily, with profit rising an average of 20% per year over the last five years.

FinanceGuy58 describes Natus as a "growth by acquisition" story. But don't let that worry you. According to CAPS All-Star Contralogic, Natus has a "[s]olid track record of acquisition integration, expansion into European market." (So it's successful growth, and international.)

And Fellow All-Star investor jamespeer points out one particular company that Natus has netted: "a very good acquisition of Alpine, world leaders in neurology expecting strong earnings growth from 2010 onwards."

Of course, Foolish investors will be aware of the risks of such acquisition-fueled growth. Notably, it has a tendency to produce rather awful-looking income statements, as the cost of goodwill from acquisitions is amortized over time. That depresses reported profit and inflates the stock's P/E ratio, all else equal. Natus's P/E now stands at the rich-seeming level of 31.

Lift the baby blanket and peek beneath, however, and you'll find Natus looking quite a bit healthier than its income statement would suggest. Free cash flow, for example, has nearly doubled reported "profit" over the last 12 months. And a disciplined strategy of not overpaying for acquisitions has left Natus with significant net cash on its balance sheet as well.

Foolish takeaway
This all works out to a stock selling for less than 16 times annual free cash flow. That's right in line if Natus continues growing profits at the rate it's maintained over the last five years, but it's arguably cheap if the company comes anywhere near fulfilling Wall Street's expectations for it. The consensus of the nine analysts who track the stock is that Natus will soon explode into a spurt of 27.5% annual growth. However, if Natus continues to grow by acquisition, the reliability of these numbers as a gauge of value, well, they get thrown out with the bathwater.

So what do you think, Fools? Is Natus about to graduate to "big-boy pants," or will this growth story remain swaddled? Click over to Motley Fool CAPS now, and place your bets.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

Natus Medical is a Motley Fool Hidden Gems selection. Sprint Nextel is an Inside Value selection. GameStop is a Stock Advisor recommendation. Johnson & Johnson is an Income Investor recommendation.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1535 out of more than 145,000 members. The Fool has a disclosure policy.