Sell-side analysts on Wall Street recommend to buy shares of Stemline Therapeutics Inc (NASDAQ:STML) and KalVista Pharmaceuticals Inc (NASDAQ:KALV), even though their share prices have lost more than 59% over the past 52 weeks through April 10. Due to such tumbles, these stocks are known as falling knives.
Some investors purchase shares of falling knives because they expect to make impressive gains out of their investment after the share prices rebound. These investors must be aware of the considerable risk that this type of investment implies, which could translate into severe portfolio damages if the underlying business goes bankrupt.
Investors can reduce such risks significantly if they catch falling knives with a moderate to low financial burden.
Stemline Therapeutics Inc
Shares of Stemline Therapeutics Inc traded at a price of $5.23 per unit at close on Friday for a market capitalization of $263.46 million. The stock price dropped 63% in the past 52 weeks through April 10.
Currently, the share price represents a 51% discount to the middle point of the 52-week range of $3.21 to $18.22. The 14-day relative strength index of 55 indicates that the share price is still trading far from oversold levels, despite the sharp downturn.
The New York-based biopharma developer of cancer treatments in the U.S. and internationally has a very low debt-equity ratio of 0.01, which beats the industry median of 0.1. The Altman Z-score of 3.94 is greater than 2.99, signaling that Stemline Therapeutics is in safe zones. Also, the Piotroski F-Score of 5 out of 9 tells us that Stemline Therapeutics is a financially stable company.
Wall Street sell-side analysts forecast the share price will hit a target of $16.44, reflecting a 214.3% upside from Friday’s closing price.
KalVista Pharmaceuticals Inc
Shares of KalVista Pharmaceuticals Inc traded at a price of $9.51 per unit at close on April 10 for a market capitalization of $169.71 million. The stock price fell by 62% in the past 52 weeks through April 10.
Currently, the share price trades at a 53% discount to the middle point of the 52-week range of $5.61 to $34.92. The 14-day relative strength index of 54 tells us that the share price is still far from oversold levels, despite the significant decline.
KalVista Pharmaceuticals is a Cambridge, Massachusetts-based clinical-stage pharmaceutical developer of protease inhibitors targeting lesions of the oral cavity and allergies triggered by hereditary factors and diabetes. The stock has a very low debt-equity ratio of 0.02, which is better than the industry median of 0.1.
A low Piotroski F-Score of 1 out of 9, which indicates poor business operation, is mitigated by the Altman Z-Score of 6.32 (greater than 2.99), which indicates that KalVista Pharmaceuticals is safe from bankruptcy in the next two years.
Wall Street sell-side analysts have established an average target price of $26.71 per share, reflecting a 181% upside from Friday’s closing price.
Disclosure: I have no positions in any securities mentioned.
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About the author:
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”
Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.