$5 Stocks Least Likely to Declare Bankruptcy

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.

4. Uranerz Energy ( URZ) is a uranium-exploration company that traded at a 52-week high of $2.50 in September 2009. However, the shares dropped after the company announced a financing deal to raise $17 million, which was used to develop mining facilities at its Nichols Ranch project. In June, Uranerz Energy said it is working to obtain operating permits on three uranium mining units in Wyoming.

Altman Z-score: 66.26

Closing Price: $1.23 (Aug. 4)

2010 Total Return: -5.4%

Current Ratio: 52.36, a strong indication that Uranerz Energy would be able to pay off current liabilities if they came due using current assets.

Consensus: Three analysts cover Uranerz Energy, and all have "buy" ratings on the stock, with an average price target of $2.30, almost double the current price. On July 28, Haywood Securities maintained its "sector outperform" rating on the company, equivalent to a "buy."

3. Rexahn Pharmaceuticals ( RNN) is a biopharmaceutical company with a focus on developing treatments for cancer and central nervous system disorders. The shares spiked to a 52-week high of $3.68 in April before the company announced results of a phase II study of its experimental anti-depressant serdaxin. TheStreet's Adam Feuerstein raised red flags about Rexahn's disclosure of what the company called positive data, arguing that the company highlighted a subgroup analysis and was data-mining. In June, Rexahn completed a registered direct offering, with net proceeds of about $9.45 million going toward further development of the company's lead clinical programs, including the funding of Rexahn's Phase II clinical study program of serdaxin, zoraxel and archexin.

Altman Z-score: 69

Closing Price: $1.37 (Aug. 4)

2010 Total Return: 101.5%

Current Ratio: 9.10, which shows that Rexahn would easily be able to use its current assets to pay back its short-term liabilities if they came due.

Consensus: Only one research firm, Rodman & Renshaw, follows Rexahn's stock. It recommends that investors buy the shares. The firm's price target of $2 represents more than 50% upside from where the stock is trading.

2. PURE Bioscience ( PURE) is a bioscience-technologies company. PURE Bioscience's stock spiked to a 52-week high of $3.74 in April after the company said it received U.S. Environmental Protection Agency registration for silver dihydrogen citrate, or SDC, a disinfectant and food-contact-surface sanitizer. In June, PURE Bioscience said it was added to the Russell 3000 Index and Russell 2000 Index, although the stock fell after the announcement.

Altman Z-score: 69.80

Closing Price: $2.68 (Aug. 4)

2010 Total Return: 84.8%

Current Ratio: 5.80, which indicates PURE Bioscience would be able to pay off its short-term obligations should they come due now.

Consensus: Two analysts cover PURE Bioscience, and they are split in their view. EVA Dimensions has a "sell" rating on shares, while Griffin Securities recommends that investors buy the stock. Griffin has an $8 price target on PURE Bioscience shares.

1. Food Technology Service ( VIFL) owns an irradiation facility in Florida that uses gamma radiation to sterilize medical devices, food and consumer goods. The shares rallied in March after the company posted a full-year profit of 20 cents a share on revenue of $2.51 million for 2009, compared with earnings of 18 cents on revenue of $2.5 million in 2008. In May, Food Technology Service said first-quarter revenue slipped 1.9% to $661,824, which the company blamed on the purchase of a customer that accounted for 25% of its 2008 revenue. Food Technology added that "virtually all of that revenue has been replaced."

Altman Z-score: 85.09

Closing Price: $2.13 (Aug. 4)

2010 Total Return: 23.1%

Current Ratio: 27.96, indicating that Food Technology would have no problem meeting its short-term liabilities with its current assets.

Consensus: No research firm covers Food Technology.

-- Written by Robert Holmes in Boston.

Follow Robert Holmes on Twitter and become a fan of TheStreet.com on Facebook.

READERS ALSO LIKE:



Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Personal Finance

The Trendiest Destinations in Europe

The Trendiest Destinations in Europe

Time to Book Your Holiday Travel

Time to Book Your Holiday Travel

America's Most Livable Cities for All Ages

America's Most Livable Cities for All Ages

What Is Capital Gains Tax and When Are You Exempt?

What Is Capital Gains Tax and When Are You Exempt?

Closed-End Funds: Everything You Need to Know

Closed-End Funds: Everything You Need to Know