When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back:
How far from 52-week high?
(out of 5)
|First Republic Bank (NYSE: FRC )||(11%)||$31.00||*****|
|Motricity (Nasdaq: MOTR )||(75%)||$7.96||**|
|SIGA Technologies (Nasdaq: SIGA )||(38%)||$9.70||**|
|Star Scientific (Nasdaq: CIGX )||(14%)||$4.58||*|
|ZAGG Incorporated (Nasdaq: ZAGG )||(19%)||$12.85||*|
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
5 super falls -- 1 superball
There's no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. So what went wrong?
It's hard to say. After all, there was precious little news of note at most of these firms last week. Scan the news feeds at Yahoo! Finance, and you'll be hard pressed to find any information to explain the downward slides at ZAGG or Star Scientific, SIGA or Motricity. Nor does valuation seem to be the culprit. While Star Scientific, SIGA, and Motricity are currently all unprofitable, two of them are expected to quickly attain profitability in the coming year, and ZAGG is already profitable (and at 25 times earnings, seems reasonably priced for its growth estimate).
Honestly, the only stock on the list that seems to have fallen for a reason -- is also the only stock on the list that investors think will bounce right back.
The bull case for First Republic Bank
Last week, five-starred First Republic Bank announced a 13 million-share secondary offering, in which the same folks who took First Republic public plan to cash out their winnings. Now, it's only natural to expect that when insiders are cashing out, outsiders might fear to buy in and even sell off the shares. But in First Republic's case, I'm not sure that fear is warranted -- and I'm not alone.
CAPS member KARABALIS argues there's no reason to sell First Republic since the firm has "no exposure to sub-prime, good management and located in a great city." (San Francisco.)
CAPS member suckershelf adds that this bank has "solid reserves." And scott84067r tells us it's got a pretty solid customer base as well, since "this bank caters to the rich. Their portfolio of bad loans is .01%."
First Republic: Buy the numbers
Indeed, as a specialist in "private banking," tiny First Republic -- with a market cap of only $4 billion -- arguably has more things in common with megabankers like Goldman Sachs (NYSE: GS ) or Morgan Stanley (NYSE: MS ) than it does with banks more "its own size," such as Zions Bancorp. Avoiding the mundane world of catering to the common man, it's able to focus its efforts on the most profitable segment of banking customers -- and boasts numbers to prove it:
Return on Assets
Return on Equity
Source: Yahoo! Finance.
Despite being wildly profitable even as Zions loses money, First Republic sells for a price-to-book value (1.8) of less than twice that of its money-losing "rival." (It's also about twice the P/B of Goldman or Morgan, but considering its level of profitability, it may deserve to be.)
Time to chime in
To me, all this makes First Republic stock look cheap. On the other hand, the insider selling does raise concerns. For one thing: valuation. Sure, First Republic's P/B ratio looks reasonable relative to what other banking stocks fetch. But at 12x estimates of next year's profit, this banker is no obvious bargain based on long-term growth expectations of 10% per year. This concern increases when you recall that First Republic only went public back in December. It remains to be seen how well its profit margins will hold up over the long term.
Personally, I don't intend to invest in the stock until it's got more of a track record to recommend it. Other Fools, however, may be more eager to rush in and buy a piece of this very profitable action. Which way do you lean? Tell us on Motley Fool CAPS.