Why Did My Stock Just Die?

Hope and fear over Europe's condition keep whipsawing the markets. Although your stock took a nosedive, 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)

Wednesday's Change

Amazon.com (Nasdaq: AMZN  )

**

(12.7%)

Zix (Nasdaq: ZIXI  )

****

(12.5%)

RadioShack (NYSE: RSH  )

*

(12.1%)

With the Dow Jones Industrial Average (INDEX: ^DJI) rebounding 162 points yesterday, or 1.4%, stocks that went down by even larger percentages are pretty big deals.

A kick in the pants
Investors in Amazon.com might have to suffer through some losses, but the long-term health of the company will be all the better for it. CEO Jeff Bezos' vision for expanding the e-commerce king's land grab requires something of a leap of faith by investors, but his expansion plans and investments in new technology mean the chasm isn't as wide as it appears.

Contrast Bezos' bets on the Kindle and the Fire tablet with those of Netflix (Nasdaq: NFLX  ) CEO Reed Hastings. Both are seen as visionaries, but the former is positioning Amazon to build on its brand while the latter sought to devalue its brand and anger its base by hiking prices. Both stocks have taken a hit (Netflix even more so, but rightly so), but Amazon should bounce back much more quickly.

Many investors, however, won't put their money in sky-high valuations when there's little profit to be seen for the foreseeable future. One of those is highly rated CAPS All-Star TSIF, who says regardless of the company's operations, its valuation can't be sustained very long without profits.

Overall, however, the luster is gone and a P/E of 88 will start to go the other way instead of down, the next few quarters. The P/B of 13 is not supportable with losses, even temporary ones. I never liked their inventory positoin or their receiveables and accounts payable, but they fit their model. The no debt and $14 per share cash is a nice cushion and will prop them up as they revamp, but overall, I think they got too aggressive at the wrong time and this may be the mistake that "right sizes" them.

You can tell us on the Amazon.com CAPS page or in the comments section below if you agree Bezos is doing too much, too soon, or see whether it can still turn things around by adding it to the Fool's portfolio tracker.

Not so secure
It was probably a harbinger of things to come but when Symantec (Nasdaq: SYMC  ) bought encryption specialist PGP last year the writing might have been on the wall for Zix, which relies on Symantec for distribution of its own email encryption products. That Zix didn't sell one large order this quarter (it defines "large" as in excess of $100,000 in recurring revenue) may be a telling statistic, considering it regularly lands at least one large deal a quarter.

Zix did get 7-Eleven to renew its contract with it so customers aren't necessarily abandoning it, but it doesn't seem like the company is gaining new ones either -- it blames the economy for buying indecision -- and it's hesitant to say when it will be able to get back to the $2 million level in new first-year sales.

There's plenty of impetus for securing email, as all the high-profile hacking cases make clear, but it seems Zix isn't getting the same business it once did. CAPS member Astuteone2 feels Zix's business has all but dried up.

Revenue growth is nearly gone. 3Q is announced to be 1% over 2nd quarter, which was 1% over the 1st quarter of this year. Zix has not diversified. They put their cash into a stock buyback at $3.5 which only served to cover up the massive dilution due to overpaid management getting fat stock options. Zix's founder, David Cook quit the board 6 months ago and sold all of his stock. No insider has bought stock in 2 years. Dead meat.

Add Zix to your watchlist and let us know in the comments section below whether you think there's some cryptic hidden in its lack of real growth.

A wireless disconnect
That's the problem with making big bets. If you choose the wrong horse to bet on you're sunk. That's what we're seeing with RadioShack, which decided it could no longer ride obscure electronic doodads and big-screen TVs to profits, so it chose instead to make a run for the roses on mobile phones. Only problem is, everyone else also thinks mobile phones are the track to greater glory as well. Best Buy (NYSE: BBY  ) and Wal-Mart are also dedicating whole stores or stores within stores to making wireless connections.

The Shack generates about half its sales from mobile and had a sweet deal with T-Mobile, but dropped it in favor of the more popular Verizon (NYSE: VZ  ) . All well and good, but it apparently forgot to tell the public they could get their Verizon phones at a local Shack. Of course, there are a plethora of stand-alone Verizon Wireless stores, resellers, and mall kiosks where consumers can pick up phones so maybe they just opted to shop elsewhere.

CAPS All-Stars are evenly split on whether RadioShack can make a connection with consumers again let alone beat the broad market indexes. Add the electronics retailer to the Fool's free portfolio tracker to keep abreast of developments and see if it will ever find its way out of the wilderness, and see what others are saying on the RadioShack CAPS page.

Fool contributor Rich Duprey owns shares of Best Buy, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of RadioShack, Best Buy, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, and Wal-Mart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. 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.


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