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)

Tuesday's Change

Limelight Networks (Nasdaq: LLNW  )

***

(37.0%)

TransAtlantic Petroleum (NYSE: TAT  )

**

(26.4%)

AOL (NYSE: AOL  )

*

(25.8%)

And just like that, the markets bounced back, jumping 430 points, or 4%. It doesn't get us back above "correction" levels, but it's a start. Whether it holds is another matter. So stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
Sorry, but the market is crazy for selling off Limelight Networks like it did. Yes, it came in a little light on revenues and earnings, but it was wholly due to circumstances beyond its control. The nearly month-long service outage at the PlayStation Network from a major hacking incident upended Sony's (NYSE: SNE  ) ability to stream Netflix (Nasdaq: NFLX  ) video.

Those are two key revenue streams for the content-delivery provider, yet it was still able to turn in double-digit revenue growth (for the fifth straight quarter) and the losses it recorded were narrower than expected, depending on whose consensus view you were going by. It's obvious that with the hit it took from the outage, full-year forecasts were going to be affected.

Yet Limelight's business doesn't look any worse than it did the other day, and it's not like Akamai (Nasdaq: AKAM  ) is running a better operation. This truly seems like one of those one-off events that provide investors with a unique opportunity.

More than likely, the market was reacting to be caught unawares by the severity of the impact. Shareholders could have been apprised sooner of the situation, considering the hack attack at Sony occurred months ago. The financial hit couldn't have been a surprise to management, so why surprise investors at the last second?

Investors don't like surprises, but after the initial shock they're able to reassess the situation. I think they'll take another look at Limelight's business and come to the same conclusion, as did 92% of the 327 CAPS members rating the CDN provider, that it will go one to beat the broad market averages.

Is it lights out for Limelight? Let us know on the Limelight Networks CAPS page or in the comments section below whether you think there's still money to be made.

We're all in this together
Soaring costs were the culprit behind TransAtlantic Petroleum's second-quarter earnings report that sent its shares tumbling. Expenses for the driller of oil in off-the-beaten-path locations jumped 64% to $39.3 million, undermining the revenue growth it achieved that amounted to just $35.5 million. Despite production increases and higher per-barrel prices realized ($85, versus $69 a year ago), losses widened from the year-ago period to $0.06 per share.

Results for the driller, which has interests in oil and gas properties in Turkey, Morocco, Romania, and Bulgaria, were also hurt by its decision to abandon its Moroccan operations earlier this year, which contributed to half the loss it incurred in the quarter. While it's looking for partners to help exploit its remaining operations, it cut back full-year production estimates by as much as 30%, dropping forecasts to 7,000 to 7,500 barrels of oil equivalent per day, down from 10,000 barrels.

TransAtlantic also has a strong CAPS contingent behind it, with 98% of those rating the driller expecting it to ultimately surpass the broad indexes. With shares now below a dollar a stub and 77% below their 52-week highs, it may turn out that a buyout offer is what it gets rather than a partner.

Add TransAtlantic to the Fool's free portfolio tracker to keep up to date on whether it can make the investments necessary to find its way to growth again.

Dial-up, anyone?
It used to be called AOHell for the interminable wait times it took to log onto or download from the site back in the halcyon days of the early Internet. But investors in today's AOL might want to dredge up the moniker again as subscribers continue to flee the service following its overpriced acquisition of the liberal-media news outlet Huffington Post. No doubt Time Warner (NYSE: TWX  ) is happy it disconnected from the service.

It was argued at the time that HuffPo is only marginally political, but because it's perceived as overtly skewed to the left, that's still its reality. AOL's decision to buy a portal to drive eyeballs to the site was probably a good idea, but choosing one that is likely to alienate half your potential audience was decidedly the wrong way to carry it out.

AOL's subscriber base continues to dwindle, with subscription sales dropping 23% in the quarter despite a 14% increase in display ad revenues (though analysts predicted 16% growth). That can't possibly hold, because the declining base means fewer people are viewing its ads. CAPS member astephan2525 even thinks the overall turnaround plan AOL put in place was a bonehead move from the get-go.

Can someone tell me why this company still exists? Or at least send a screenshot proving that someone still uses AOL as their ISP? Ok so they are trying to transform into a content farm which means writing really bad short articles on a variety of subjects and surrounding them with advertisements; not exactly an inspiring turnaround pitch.

You can follow along on AOL's progress by adding it to your watchlist, and let us know on the AOL CAPS page whether investors need a liberal dose of optimism to put their money here.

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.

Motley Fool newsletter services have recommended buying shares of and puts in Netflix and formerly recommended Akamai Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in the article. You can see his holdings. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (3)

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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 August 10, 2011, at 10:32 PM, 5574tjh wrote:

    You are Not correct about Akamai not running a better business.

    1. Limelight is burning thru cash!

    2. Akamai is building cash-added over $100 million this quarter

    3. Akamai has over $1.4 billion in cash, adding $500 million last year

    4. Limelight has had to have multiple 2ndaries of stock to get cash.

    5. Akamai has been able to fuel growth thru organic growth and R and D.

    6. Limelight has had to buy companies to keep up- R and D is non existent - further diluting shares

    They are not the same!

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