Investing 101: Falling Knives With Poor Accounts-Receivable Trends

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Are you a risk taker? Here 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 receivable -- 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 percentage 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 MAs.

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 accounts-receivable trends and negative rallies, use this list as a starting point for you own analysis.

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

List sorted by distance from SMA200. (Get access to free, interactive tools to analyze these ideas.)

1. TransAtlantic Petroleum (NYS: 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 ($35.51 million vs. $18.6 million year over year). Accounts receivable grew by 160.59% during the same time period ($51.31 million vs. $19.69 million year over year). Receivables, as a percentage of current assets, increased from 18.37% to 53.25% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 30, 2010).

2. James River Coal (NAS: 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 ($352.04 million vs. $183.04 million year over year). Accounts receivable grew by 133.4% during the same time period ($138.03 million vs. $59.14 million year over year). Receivables, as a percentage of current assets, increased from 20.7% to 32.12% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 30, 2010).

3. OfficeMax (NYS: 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 fell by 0.34% during the most recent quarter ($1,647.62 million vs. $1,653.17 million year over year). Accounts receivable grew by 8.92% during the same time period ($548.92 million vs. $503.96 million year over year). Receivables, as a percentage of current assets, increased from 25.64% to 28% during the most recent quarter (comparing the 13 weeks ending June 25, 2011, to the 13 weeks ending June 26, 2010).

4. Amedisys (NAS: 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 fell by 11.51% during the most recent quarter ($373.72 million vs. $422.35 million year over year). Accounts receivable grew by 0.94% during the same time period ($153.27 million vs. $151.85 million year over year). Receivables, as a percentage of current assets, increased from 52.3% to 74.85% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 30, 2010).

5. WMS Industries (NYS: 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 fell by 4.78% during the most recent quarter ($203.2 million vs. $213.4 million year over year). Accounts receivable grew by 3.68% during the same time period ($284.6 million vs. $274.5 million year over year). Receivables, as a percentage of current assets, increased from 49.46% to 57.21% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 30, 2010).

6. Ferro (NYS: 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 ($593.97 million vs. $543.49 million year over year). Accounts receivable grew by 15.27% during the same time period ($415.18 million vs. $360.17 million year over year). Receivables, as a percentage of current assets, increased from 53.82% to 56.39% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 30, 2010).

7. Hewlett-Packard (NYS: HPQ) : Offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses, 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 ($31,189 million vs. $30,729 million year over year). Accounts receivable grew by 15.57% during the same time period ($21,288 million vs. $18,420 million year over year). Receivables, as a percentage of current assets, increased from 33.88% to 37.83% during the most recent quarter (comparing the three months ending July 31, 2011, to the three months ending July 31, 2010).

8. Harmonic (NAS: 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 ($134 million vs. $95.54 million year over year). Accounts receivable grew by 65.16% during the same time period ($117.86 million vs. $71.36 million year over year). Receivables, as a percentage of current assets, increased from 16.08% to 31.06% during the most recent quarter (comparing the three months ending July 1, 2011, to the three months ending July 2, 2010).

9. Calix (NAS: 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 ($97.96 million vs. $71.65 million year over year). Accounts receivable grew by 63.03% during the same time period ($57.94 million vs. $35.54 million year over year). Receivables, as a percentage of current assets, increased from 19.55% to 41.03% during the most recent quarter (comparing the 13 weeks ending June 25, 2011, to the 13 weeks ending June 26, 2010).

10. First Solar (NAS: FSLR) : 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 fell by 9.37% during the most recent quarter ($532.77 million vs. $587.85 million year over year). Accounts receivable grew by 67.45% during the same time period ($605.65 million vs. $361.68 million year over year). Receivables, as a percentage of current assets, increased from 22.38% to 32.98% during the most recent quarter (comparing the three months ending June 30, 2011, to the three months ending June 26, 2010).

Interactive Chart: Press Play to compare changes in analyst ratings over the past two years for the stocks mentioned here. Analyst ratings sourced from Zacks Investment Research.

Disclosure: Kapitall's Eben Esterhuizen does not own any of the shares mentioned above. Becca Lipman owns FSLR. Data sourced from Google Finance.

At the time this article was published The Motley Fool owns, and Motley Fool newsletter services have recommended buying, shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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