Investing 101: Falling Knives With Poor Account Receivable Trends

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(Article by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Google Finance.)

Are you a risk taker? Below we list stocks that are stuck in a downtrend--trading below the SMA20, SMA50 and SMA200.

Before you think these companies offer great value, pay close attention to trends in their accounts receivables--all of these companies have seen accounts receivable grow faster than revenue during the most recent quarter.

All of these companies have also seen accounts receivable grow significantly relative to current assets.

Interested in reviewing the key concepts here?

Downward Rally: When a stock is stuck in a downward-trending rally it means it is performing below its moving average for a given time period. It is presented as a % of performance relative to the average. When a stock is performing below its 20-day moving average (MA or SMA) as well as its 50 and 200 day moving averages, it signals bearish momentum. All the stocks in this list are rallying below their 20, 50, and 200-day MA.

Accounts receivable is a big part of revenue for many companies, but it is also a potential source of problems.

Receivables represent money earned but not yet collected, so when receivables become a larger part of the revenue reported by a company, it indicates lower quality revenues. This is because there is no guarantee that the money will be paid back in full.

Assets: Any property or holding that has tangible value is listed as an asset. This can include cash, product inventory, accounts receivable, land, equipment, investments, and more.

There is no right or wrong proportion of current (short-term, liquid) assets and long-term assets. However, dwindling cash and current asset levels should be a concern – it may be a sign of growing illiquidity, which can hamper or even paralyze a company.

Now that you're aware of the implications of account receivable trends and negative rallys, use this list as a starting point for you own analysis.

Is this a list of falling knives? What do you think? 

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

List sorted by distance from SMA200.

1. TransAtlantic Petroleum Ltd. (TAT): Engages in the acquisition, development, exploration, and production of crude oil and natural gas. The stock is currently trading 7.56% below the SMA20, 16.51% below the SMA50, and 56.28% below the SMA200. Revenue grew by 90.91% during the most recent quarter ($35.51M vs. $18.6M y/y). Accounts receivable grew by 160.59% during the same time period ($51.31M vs. $19.69M y/y). Receivables, as a percentage of current assets, increased from 18.37% to 53.25% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

2. James River Coal Co. (JRCC): Engages in mining, processing, and selling bituminous, steam, and industrial grade coal in eastern Kentucky and in southern Indiana. The stock is currently trading 8.44% below the SMA20, 34.47% below the SMA50, and 53.85% below the SMA200. Revenue grew by 92.33% during the most recent quarter ($352.04M vs. $183.04M y/y). Accounts receivable grew by 133.4% during the same time period ($138.03M vs. $59.14M y/y). Receivables, as a percentage of current assets, increased from 20.7% to 32.12% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

3. OfficeMax Incorporated (OMX): Distributes business-to-business and retail office products. The stock is currently trading 3.49% below the SMA20, 12.79% below the SMA50, and 51.43% below the SMA200. Revenue grew by -0.34% during the most recent quarter ($1,647.62M vs. $1,653.17M y/y). Accounts receivable grew by 8.92% during the same time period ($548.92M vs. $503.96M y/y). Receivables, as a percentage of current assets, increased from 25.64% to 28.% during the most recent quarter (comparing 13 weeks ending 2011-06-25 to 13 weeks ending 2010-06-26).

4. Amedisys Inc. (AMED): Provides home health and hospice services including practical nursing services and physical and occupational therapy. The stock is currently trading 7.56% below the SMA20, 25.33% below the SMA50, and 49.10% below the SMA200. Revenue grew by -11.51% during the most recent quarter ($373.72M vs. $422.35M y/y). Accounts receivable grew by 0.94% during the same time period ($153.27M vs. $151.85M y/y). Receivables, as a percentage of current assets, increased from 52.3% to 74.85% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

5. WMS Industries Inc. (WMS): Engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. The stock is currently trading 8.65% below the SMA20, 19.67% below the SMA50, and 44.52% below the SMA200. Revenue grew by -4.78% during the most recent quarter ($203.2M vs. $213.4M y/y). Accounts receivable grew by 3.68% during the same time period ($284.6M vs. $274.5M y/y). Receivables, as a percentage of current assets, increased from 49.46% to 57.21% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

6. Ferro Corp. (FOE): Engages in the production of specialty materials and chemicals for a range of manufacturers worldwide. The stock is currently trading 0.48% below the SMA20, 21.59% below the SMA50, and 42.20% below the SMA200. Revenue grew by 9.29% during the most recent quarter ($593.97M vs. $543.49M y/y). Accounts receivable grew by 15.27% during the same time period ($415.18M vs. $360.17M y/y). Receivables, as a percentage of current assets, increased from 53.82% to 56.39% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-30).

7. Hewlett-Packard Company (HPQ): Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. The stock is currently trading 5.27% below the SMA20, 23.25% below the SMA50, and 40.08% below the SMA200. Revenue grew by 1.5% during the most recent quarter ($31,189M vs. $30,729M y/y). Accounts receivable grew by 15.57% during the same time period ($21,288M vs. $18,420M y/y). Receivables, as a percentage of current assets, increased from 33.88% to 37.83% during the most recent quarter (comparing 3 months ending 2011-07-31 to 3 months ending 2010-07-31).

8. Harmonic Inc. (HLIT): Designs, manufactures, and sells video products and system solutions that enable service providers to deliver broadcast and on-demand services. The stock is currently trading 0.13% below the SMA20, 12.62% below the SMA50, and 37.72% below the SMA200. Revenue grew by 40.26% during the most recent quarter ($134M vs. $95.54M y/y). Accounts receivable grew by 65.16% during the same time period ($117.86M vs. $71.36M y/y). Receivables, as a percentage of current assets, increased from 16.08% to 31.06% during the most recent quarter (comparing 3 months ending 2011-07-01 to 3 months ending 2010-07-02).

9. Calix Inc. (CALX): The stock is currently trading 12.43% below the SMA20, 28.51% below the SMA50, and 37.63% below the SMA200. Revenue grew by 36.72% during the most recent quarter ($97.96M vs. $71.65M y/y). Accounts receivable grew by 63.03% during the same time period ($57.94M vs. $35.54M y/y). Receivables, as a percentage of current assets, increased from 19.55% to 41.03% during the most recent quarter (comparing 13 weeks ending 2011-06-25 to 13 weeks ending 2010-06-26).

10. First Solar, Inc. (FSLR): First Solar, Inc. manufactures and sells solar modules using a thin-film semiconductor technology. The stock is currently trading 11.70% below the SMA20, 22.33% below the SMA50, and 37.61% below the SMA200. Revenue grew by -9.37% during the most recent quarter ($532.77M vs. $587.85M y/y). Accounts receivable grew by 67.45% during the same time period ($605.65M vs. $361.68M y/y). Receivables, as a percentage of current assets, increased from 22.38% to 32.98% during the most recent quarter (comparing 3 months ending 2011-06-30 to 3 months ending 2010-06-26).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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