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Peter Lynch had it right, and it bears repeating. The worst stock to buy is the one everyone's talking about. The worst stock to buy sits in the hottest category. The worst stock to buy is in all the headlines. Six years ago, that stock was Taser (Nasdaq: TASR ) .
You'll remember that its shares 10-bagged in just a few years. At $30 a share, the company was valued in the billions. And all of a sudden, share price appreciation blended with media enthusiasm to create a story-stock monster.
And what happens next?
Well, the world begins to see that even the most exciting story has its limits. I remember investing in a company named Ride Snowboard 15 years ago. The stock doubled, and doubled again. I found myself dreaming about snowboards, wondering if I could snowboard to work in Alexandria, Va. Thankfully, I sold in increments as the shares fell 10%, and then another 30%, and then another 20%, and then another 15%.
Sometimes this fall from grace for a stock can decimate the business. That's particularly true when the company -- wildly enthusiastic about its prospects -- takes on leverage to accelerate its growth. Hello, Citigroup. Hello, Bank of America. Hello, Enron. When the smackdown begins, every element of failure integrates with the poor financial management, and the enterprise falls apart in front of your eyes.
So, what about Taser? While the stock has fallen more than 80% from its highs, the business stands comfortably on a pile of $37 million in cash. The company's finances have been managed conservatively. And now Taser, quietly, can work on building out its markets. The story-stock smackdown is over. Now, we can see if it can methodically grow into higher valuations, permanently.