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:

Stock

CAPS Rating (out of 5)

Thursday's Change

Travelzoo (Nasdaq: TZOO  ) * (34.7%)
eMagin (AMEX: EMAN  ) *** (22.2%)
Sify Technologies (Nasdaq: SIFY  ) ** (18.1%)

The debt deal looks closer, Greece might get bailed out, and with better-than-expected earnings reports coming in, the Dow made another big move yesterday, soaring 152 points (or 1.2%). So stocks that went down by even larger percentages are pretty big deals.

The zoo is loose!
As everyone wants to be Groupon these days and offer local discounts to consumers, it was natural that travel sites would glom onto the fad, too. Travelzoo started offering its Local Deals and began a TV ad campaign to promote the service -- but that was an expensive proposition. It cost $0.07 per share in earnings, which helped the travel site to severely miss Wall Street expectations.

Despite revenues soaring 34% and profits rising by more than half, it still fell well short of analyst forecasts. The stock fell, too.

Being like Groupon is a risky deal these days. Earlier this year, Travelzoo plummeted when Indian Internet portal Rediff.com (Nasdaq: REDF  ) started offering discounts. And with Expedia (Nasdaq: EXPE  ) and priceline.com (Nasdaq: PCLN  ) in its own space jumping into the deals-of-the-day race, whatever specialness T-Zoo thought it would get from its own offerings became seriously diluted.

CAPS member shamapant says Travelzoo getting cut off at the knees is an overreaction when considering its actual earnings performance. I'm inclined to agree with my Foolish colleague Brian Pacampara who points out that even at this discounted price, it's still more expensive than either Priceline or Expedia. But paids said the other day he thinks it is the economy that will really hold T-Zoo back.

There is no way an Internet travel company ... is going to go up in value in a coming recession. With the price of oil/gas going up, and unemployment going up, how many people are going to be traveling? Not many. This stock is headed down.

Let us know on the Travelzoo CAPS page or in the comments section below if you think it will be taking a trip to the upside anytime soon.

Get a magnifying glass
It was earnings that doomed microdisplay maker eMagin … or rather, the company's updating its guidance to say that production output still didn't meet the company's targets. The gap between actual and planned production narrowed somewhat during the quarter, but not fast enough to keep investors happy. Revenues for the year are now expected to be $29 million to $33 million, well below the previous guidance of $35 million to $40 million.

Contracts with ITT and FLIR Systems  (Nasdaq: FLIR  ) for its OLED technology provide the microdisplay maker with a firm foothold to get bigger, but delays with two government contracts totaling $6 million are holding it back for now. Management says production should improve in the back half of the year -- but last quarter, it was confident in its forecasts, too.

Even so, the bullish investment thesis for eMagin was not for immediate results. The contract with ITT, for example, was expected to start ramping up over the next year or so, but the bulk of the potential revenues won't be realized for some three years or so. With the stock down almost 50% from its recent highs and trading at 10 times earnings, I think eMagin is undervalued right now.

It's still flying under the radar right now, with fewer than 100 CAPS members weighing in, but of those who have, 93% believe it will go on to outperform the broad market averages. You can follow along on whether  eMagin makes a big impact by adding the stock to Fool's free portfolio tracker.

A lagging indicator
It was an inquiry by the Wall Street Journal that caused shares of Indian Internet service provider Sify Technologies to drop. The Nasdaq stock exchange had listed the company's number of shares outstanding as just 53 million, but the WSJ pegged it closer to 178 million and when it inquired of Nasdaq about the discrepancy, the exchange updated its numbers and investors panicked.

The paper places the blame on lag times in reporting requirements. Foreign firms only update their numbers twice a year. Sify last filed its report in December for the fiscal year that ended in March 2010. In the interim, the company issued 125 million heavily discounted shares (at 70% off!) to investors with ties to the CEO and his brother, who owned more than half the company at the time.

Sify argues that despite the shares being common equity of the company, they shouldn't be counted toward the total since they're unlisted on any exchange and aren't traded.

Investors weren't buying it and dumped the shares. While 90% of the more than 300 CAPS members rating Sify think it will outperform the broad market averages, its low two-star rating suggests they believe there are better places for your money.

CAPS member EvilEmpire says the share count revelation is a cause for concern. What do you think? Follow developments by adding the company to your watchlist and tell us in the comments section below or on the Sify Technologies CAPS page whether investors will continue to accept these lags in reporting.

Ready for a resurrection
Just because your stock has taken a beating 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.

Motley Fool newsletter services have recommended buying shares of Travelzoo and priceline.com. 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 the article. You can see his holdings here.


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