When a stock is trading near its 52-week low or recently made a new low I would suggest that there is a fair shot that the shares could go even lower. Shareholders could note the stock's poor performance and liquidate their holdings which could in turn drive the price lower. Also, quite often some money managers (if they are in the stock) may try to ditch poor performers for window dressing purposes.
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With that in mind, I searched for companies that are trading at or near their 52-week low, which I've included in the table below. Only companies that were expected to lose money or that trade in excess of 20-times the current year estimate were included. My thinking is that these companies may be worth a closer look perhaps as potential short candidates.
|Company||52-Week Range||Current Price as a % of its 52-Week Range|
|$4.98 - $35.82||7.5%|
|$14.24 - $54.81||11.6%|
|$5.95 - $29.33||7.5%|
|$6.05 - $30.35||11.7%|
|$6.99 - $26.14||9.0%|
|Data as of March 19, 2009|
Let's take a look at Monster Worldwide, which is currently trading at 7.5% of its 52-week range. This well-known online job solutions provider is trading pretty close to its 52-week low. And I don't think it's too big a mystery as to why - the slumping economy has played a role. There are, however, a few things that turn me off about the company right now.
First, if you have the opportunity, take a gander at the company's fourth quarter results. In the period ending December 31, its revenue line came in at roughly $290.7 million, which was a more than 16% decline from the comparable period the year before. Now that's not the end of the world and I would argue that a weak economy was to blame, but nonetheless that is a sharp decline and it makes me wonder what the near-term future may hold.
Monster is expected to post a profit, albeit a small profit of 6 cents a share in the current year. But in my mind that's not all that impressive given that the shares currently trade just under $8. In 2010 the company is expected to earn 32 cents (estimate data as of March 19), but again, that's not impressive given the current share price. Although it's not a direct comparison, Florida-based specialty staffing company Kforce (Nasdaq:KFRC) currently trades at about 20.3-times the current year estimate of 33 cents. Meanwhile staffing solution company MPS Group (NYSE:MPS) currently trades at about 26-times the current year estimate of 21 cents.
Yet another concern I have is the stock's proximity to the $5 mark. I realize it currently trades a couple of dollars or so north of that. However, in this volatile market I don't think it's beyond the realm of possibility that it could slip below that mark at some point. If it slides under $5, some funds and brokers may be reluctant to get involved and promote the stock. (To learn more about this, read The Pros And Cons Of Institutional Ownership.)
Despite all of the above, some insiders seem bullish. A quick look at the data on Yahoo!Finance shows a flurry of insider buying in the November 2008 timeframe and some similar purchases in the February 2009 timeframe. From my experience insiders don't usually buy stock unless they think they have a fair shot of making money at some point.
There is no guarantee that a stock trading near its 52-week low or at its low will continue to trade in the doldrums. However, I believe that there is a chance they could, if existing investors become disillusioned and head for greener pastures making these stocks excellent for shorting.
For more on using a stock's 52-week range as an analysis tool, be sure to read the 52-Week Highs/Lows section of our Market Breadth Tutorial.