Stocks Under $5 at Risk of Bankruptcy
BOSTON (TheStreet) -- Small-cap stocks have enjoyed a tremendous rally since the March 2009 low, although the recent losing streak for equity markets has stoked fears that bankruptcy for some companies with share prices below $5 is imminent.
There are few reliable ways of determining which companies are at a greater risk of going bankrupt than others. The Altman Z-score, a formula developed by New York University professor Edward Altman in 1968, is one of them.
The Altman Z-score measures companies' financial health to predict which may enter bankruptcy within two years. The gauge was 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.
Altman Z-scores carry 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 even have a negative score.With data provided by iMetrix, TheStreet found 10 companies on the New York Stock Exchange, NYSE Amex and Nasdaq trading at less than $5 with the lowest Altman Z-scores. The current ratio for each company is given, as that gauge can help investors measure the ability to meet short-term obligations. If a company with a low Altman Z-score runs into cash-flow problems, a failed new product or unexpected expenses, for example, the chance of bankruptcy rises.
10. PositiveID (PSID) Company Profile: Formed after the 2009 merger of VeriChip and Steel Vault, PositiveID provides health- and security-identification tools to protect consumers and businesses. Altman Z-score: -33.47 Current Share Price: 34 cents (June 7) 2011 Return: -45% Current Ratio: 1.5, indicating that PositiveID should be able to meet its short-term liabilities with its current assets.
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 + 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