With stock market valuations so high and with the bull market approaching eight years old, many investors have been looking for new ideas for gains and income ahead. Looking outside of the norm can come with some serious risks, and there may be nothing riskier than cult stocks.
24/7 Wall St. identifies cult stocks often in the same light as “story stocks,” which would imply that the story is often larger than the reality or the current history of the company. As you will see, these cult stocks can fall from grace rather quickly — even if they haven’t been in the good grace of the trading gods for some time.
When investors see normal daily moves in the Dow Jones Industrial Average or in the S&P 500, they generally see a move of less than 1% up or down on any given day. A big news day might mean a move of 1% or 2%, but a 2% move on the Dow at this point is still more than 350 points in either direction.
Five of these cult stocks have put a serious sting on themselves and their shareholders either, in fresh trading Thursday or in recent days. The common denominator is that earnings season has been rather cruel to these companies, with drops of 20% to 40% on average.
Here are five cult stocks that have destroyed their shareholders so far during this earnings season.
Achillion Pharmaceuticals Inc. (NASDAQ: ACHN) may feel like the move is extreme, but its current $525 million market cap was valued at $835 million or so before the drop. Some investors may be disappointed on its drug development updates. Leerink has just warned about questions being raised by liver enzyme elevations in its ongoing MAD Study and being unable to get more information from the company. Things are substantially worse than in early 2015 when it was going to be a potential key biotech.
When Achillion reported its third-quarter financial results early Thursday, it posted a net loss of $0.15 per share with no revenues for the quarter. Consensus estimates from Thomson Reuters had called for a net loss of $0.16 per share with no revenue estimate. Last year, Achillion actually posted a profit during this quarter, $0.19 in earnings per share (EPS), and $33.82 million in revenue.
Achillion shares were last seen trading down 30.5% at $4.19 midday on Thursday. The stock even hit a new 52-week low of $3.78 (versus a 52-week high of $10.95). The 8 million shares traded by noon was also more than six times normal trading volume, and this already marked the most active trading day going back at least a year. Achillion has been public since late 2006, and it was a $15 stock in early 2007.
It may feel like it is impossible for First Solar Inc. (NASDAQ: FSLR) to be a cult stock since it is the leader among U.S. solar outfits. Still, solar has fallen very much out of favor, and the fate of post-2016 subsidies remains in the air.
First Solar shares got demolished on Thursday after the company reported its third-quarter results. The company actually had a strong quarter on the bottom line, with $1.22 in EPS, versus the consensus estimate of $0.74. However, revenues failed to live up to expectations, coming in at $688 million, compared with the consensus estimate of $988 million.
Shares of First Solar were down 18.5% at $33.07 on Thursday, and the stock hit a 52-week low of $32.90 on the same day. Keep in mind that First Solar was down 1.1% at $40.58 ahead of earnings and down just 6.3% at $38.00 in Thursday morning’s premarket hours.