BOSTON (TheStreet) -- Companies that trade for less than $5 a share are typically viewed as speculative, though they're not all in the same shape.
The Altman Z-score, a formula developed by New York University professor Edward Altman in 1968, measures companies' financial health to predict which may enter bankruptcy within two years. The gauge was found to be 80% to 90% accurate on samples of distressed firms one year prior to bankruptcy by examining working capital, retained earnings and other measures, according to Altman's study.
A company's Altman Z-score places it in one of three classifications. Companies with an Altman Z-score of at least 3 are considered "safe," while those with 1.8 or less are "distressed." Those in between are in a gray zone. Some stocks trading under $5 have a negative score.
TheStreet ranked companies on the New York Stock Exchange and Nasdaq trading at less than $5 with a minimum $5 million market value and the strongest Altman Z-score. Each company's current ratio is given, which helps measure the ability to meet short-term obligations.
5. China Education Alliance (CEU) is a Chinese online education and training company. The stock had traded above $5 until May, when China Education reported a fiscal fourth-quarter profit of 12 cents a share on revenue of $8.6 million, which was below the consensus target for earnings of 15 cents a share on $11 million in revenue. Still, China Education has seen revenue increase sharply in the past three years. Altman Z-score: 62.21 Closing Price: $3.97 (Aug. 4) 2010 Total Return: -35.1% Current Ratio: 42.04. A current ratio well above 1 indicates that China Education would have no difficulty meeting its short-term obligations with current assets if those liabilities came due. Consensus: Two research firms, Rodman & Renshaw and Hudson Securities, have "buy" ratings on the company and an average price target of $8.50. No other analyst covers the stock.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV