Why Did My Stock Just Die?

Your stock just took a nosedive -- but don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit.

Retail-sales data provided a respite from the gloomy economic news we've been accustomed to hearing lately, leading the markets jump more than 123 points, or 1%. But as these gains are not expected to hold, stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
The markets were less than impressed with sales of Makena at KV Pharmaceutical. The drugmaker created a firestorm of indignation earlier this year, when it announced a pricing scheme for the drug that made it look as if it was trying to profiteer off at-risk babies. 

To quell the uproar, KV first offered financial assistance to those who couldn't afford the $1,500-per-dose cost (um, "everyone"?), and then when that feeble attempt failed, it cut the price to $690. The FDA then weighed in and said it wouldn't grant Makena exclusivity, meaning the original lower-cost options would still be available. The PR disaster was reflected in KV's quarterly results.

Since March 31, it has shipped only 200 vials of Makena, and although 1,700 patients have been referred to the enrollment and treatment, almost half (800) failed to get a Makena prescription filled. Revenues for the quarter came in at just $16.8 million, well below the $36 million Wall Street was expecting, and more ominously, a going-concern notice was included in the annual report, meaning its auditors question whether it can survive.

I've noted before that big-name pharmaceuticals such as Johnson & Johnson (NYSE: JNJ) and Merck (NYSE: MRK) have overcome public-relations and legal disasters, but they were well-funded pharmaceuticals. With just $195 million in cash and short-term investments, KV will be hard-pressed to meet its financial obligations, including $200 million worth of convertible notes that holders could require them to repurchase in full by May 2013. Significant dilution of current shareholders seems to be in the cards.

Even so, the CAPS community remains hopeful, with 93% of those rating the drugmaker believing it will beat the broad market indexes. Keep an eye on KV's future by adding its stock to the Fool's free portfolio tracker, where all the news and analysis is brought together in one place.

Fit to be tied
Aren't beat-and-raise quarterly results supposed to cause your stock to soar? Not for video-game maker Majesco Entertainment. It reported adjusted earnings of $0.13 per share, compared with the $0.07 that Wall Street had been expecting, while revenues jumped to $32 million on the strength of its Zumba Fitness franchise, easily surpassing analyst expectations of just $25 million. Majesco also boosted full-year guidance to a range of $0.30 to $0.35 per share, from its previously stated range of $0.20 to $0.25.

Hoo-ha! And that warrants a 17% drop in value yesterday and another dip today? Perhaps it was pulled down by the expectations that video-game sales generally will be in for some hurt. Game-system revenues plunged 19% in May, compared with the 8% decline that was forecast. At least one analyst pointed to Take-Two Interactive's (Nasdaq: TTWO) lousy sales as a reason for nearly half the decline.

CAPS member don1941t says the proliferation and popularity of social-media gaming should benefit Majesco, but 59% of the All-Stars rating the gamer have doubts that it can beat the market, as reflected in its one-star rating. Let us know on the Majesco Entertainment CAPS page whether you think it's got game.

Inoculating your investment
Just the other day, one-time friend but current foe PharmAthene (NYSE: PIP) was tumbling because it announced a dilutive $6.5 million share offering, and this week it's SIGA Technologies falling after media reports that Congress is looking into the way it won its smallpox antiviral contract. Essentially, the government rewrote the rules to guarantee that SIGA would win.

Despite the tumble, analysts think the congressional scrutiny won't change anything. An RBC Capital Markets analyst says the Department of Health and Human Services wants the antiviral ST-246, and "SIGA is the only company that can supply it."

Highly rated CAPS All-Star zzlangerhans thinks there's little chance the investigations will interfere with SIGA's success.

The way I see it, the contract is signed and SIGA is ready to supply. The protest, lawsuits, and investigations are not going to stop what BARDA perceives as a solution to a national security issue. I don't know if this is the bottom, but I'm about 80% sure that ST-246 delivery will eventually proceed.

Do you think SIGA can successfully go under the congressional magnifying glass? Let us know in the comments section below and add its stock to the Fool's free portfolio tracker.

Ready for a resurrection
Just because your stock has taken a beating, that doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.