Whoa! What Just Happened to My Stock?

Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine a few stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating
(out of 5)

Tuesday's Change

Wave Systems (Nasdaq: WAVX  ) * 21.1%
SINA (Nasdaq: SINA  ) *** 18.6%
Rediff.com (Nasdaq: REDF  ) * 10.7%

Markets staged their fourth straight up day following a week of dreary movements lower as they warmed up to the notion Greece will adopt austerity measures. The Dow Jones index rose 109 points, or almost 1%, so stocks that went significantly higher are pretty big deals.

Rogue waves
The big deal for Rediff.com was that it will be added on Friday to the Russell Global Index along with Sify Technologies (Nasdaq: SIFY  ) . Since mutual funds that mimic the indexes tend to update their own holdings, investors anticipate a large wave of buying.

Speaking of waves, the market liked Wave Systems' shelf registration in a big way; it sent the stock soaring. The $30 million shelf registration statement it filed yesterday replaces a previous one that expires tomorrow and would allow it to raise cash in a hurry if it's needed. Shelf registrations give companies three years to sell the underlying shares.

A little more than a month ago, Wave shares plunged after a disappointing earnings report showing widening losses even as revenues jumped. The sell-off seemed a bit premature because it was still lining up business and was working to attract a global, enterprise-level clientele.

Of course, while that sounds good, it can't be ignored that Dell remains its largest customer, and dangerously so. The computer maker accounted for 80% of the software security specialist's 2010 revenues, introducing an exceptional level of risk into the equation. Going up against bigger, better-financed rivals, such as EMC's (NYSE: EMC  ) RSA Security and Symantec, makes it difficult to recommend the stock as an investment. Even as it's working to diversify its revenue sources, the Dell component is critical and any hiccup will devastate the stock.

Although 54% of CAPS members rating Wave Systems think it will outperform the broad market averages, more than two-thirds of the All-Stars weighing in disagree. Share your opinion on the Wave Systems CAPS page and follow its progress by adding it to the Fool's free portfolio tracker.

Fine china
Chinese Internet specialist SINA participates in the growing social-media revolution in China through its Twitter-like service Weibo. While Renren (Nasdaq: RENN  ) says it never refers to itself as a Facebook wannabe, its first-quarter earnings performance -- the first since going public -- left the market with a bad case of buyer's remorse. They had bid the company up to a $5 billion market valuation, but it's become clear it can in no way support that number with what it has going for it right now.

Most of Renren's success came from its advertising business while its ancillary operations at Nuomi, a daily deals service similar to Groupon, posted operating losses. That was good news for both SINA and Baidu (Nasdaq: BIDU  ) , another Chinese social-media starlet said to be ready to hook up with the real Facebook when it wants to enter China. E-Commerce China Dangdang didn't seem fazed one way or the other.

CAPS member oeustice is worried about SINA's corporate governance practices. Earlier this month it was revealed that insiders had set up a special vehicle to sell large blocs of shares to Goldman Sachs. In the days leading up to the announcement, SINA's stock suddenly began falling. Management says it was just market mechanics, but the sell-off was steeper than competitors suffered and it has continued since the details were released.

Stay on top of SINA's developments by adding it to your watchlist.

Going into orbit
It pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for reentry, or off to infinity and beyond.

The Motley Fool owns shares of EMC. Motley Fool newsletter services have recommended buying shares of SINA, Amazon.com, and Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 24, 2011, at 7:32 PM, rivershore3071 wrote:

    WAVX filed its shelf registration after the market close on Tuesday. It is time stamped at 4:25 pm at the SEC. The press release was issued shortly afterwards. Your opinion about the market's vote on the shelf is not supported by the facts.

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