5 Superball Stocks

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 more than 180,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.

It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

Companies

 

How Far From 52-Week High?

Recent Price

CAPS Rating
(out of 5)

Ebix (Nasdaq: EBIX  ) (30%) $18.60 *****
Fusion-io (NYSE: FIO  ) (45%) $22.95 **
Threshold Pharmaceuticals (Nasdaq: THLD  ) (31%) $6.25 **
JDS Uniphase (Nasdaq: JDSU  ) (50%) $11.09 **
Green Mountain Coffee Roasters (Nasdaq: GMCR  ) (78%) $25.10 *

Companies are selected by screening on finviz.com for abrupt 10% or greater price drops last week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.

Five super falls -- one superball
Last week was a rough one for Mr. Market, as the Dow dropped 1.5% and the S&P 500 2.5%. More than 4,900 separate companies declined in value, but few took hits as big as the five named up above -- each was literally decimated, losing 10% or more of its market cap. So what went wrong?

Let's start with the obvious: Green Mountain. The K-company posted 37% sales growth and 33% better adjusted earnings, but still missed estimates badly. Worse still, Green Mountain cut estimates for the rest of the year pretty significantly, spooking investors and costing Green Mountain nearly half its market cap.

Similar story at JDS Uniphase. The optical networking firm has posted three consecutive quarters of declining revenues. Last week, it promised shareholders a fourth. Little wonder investors are heading for the exits.

Filling out the roll call of misery, Threshold Pharma reported a $115.5 million loss, and Fusion-io a $4.7 million loss (albeit that one's still promising 75% sales growth this year, so there's still some hope there). Regardless, judging from the one- and two-star ratings being handed out to these stocks on CAPS, investors are starting to lose patience waiting for promises to turn into performance.

Indeed, they're so scared, it appears, that investors even decided to toss out baby software-maker Ebix with the dirty bathwater described above. Ebix hasn't even reported earnings yet, you see, but considering how poorly others are performing, some nervous investors decided to dump the stock ahead of tomorrow's earnings. Was that the right call?

The bull case for Ebix
CAPS members by and large give Ebix a Fool compliment of five stars. Clint35 calls the insurance software maker "insanely cheap," while inceinc loves the "great free cashflow."

CAPS member Beginner110 adds that in addition to what it's already done, Ebix is "Increasing earnings, cash flow, sales, at an enormously high rate. Credit rating very good for small company."

While I personally wouldn't call Ebix's projected 20% earnings growth rate "enormous," it is certainly decent. Certainly fast enough to justify the stock's lowly 10 P/E ratio. What's more, for all the criticism Ebix has garnered for being a "roll-up" artist, the truth is that this company looks cheap by just about any measure you choose to use.

Even viewed in the least favorable light possible -- subtracting the costs of acquisitions from free cash and dinging the company for the debt on its books -- Ebix looks like a 12-times ratio stock when valued on enterprise-value-to-free-cash flow. And again, at 20% growth that price looks cheap.

Foolish final thought
I'm personally sufficiently impressed by Ebix's numbers that I'm going to go right ahead and publicly recommend buying the stock on CAPS. Could be I'm wrong about this. Could be I'm right. The good news is that in just 24 hours, we'll know the answer.

How will this investment work out? Follow along and find out.

Like buying stocks with the potential to bounce back big? Read the Fool's new report and Discover the Next Rule-Breaking Multibagger.

Fool contributor Rich Smith does not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 348 out of more than 180,000 members. The Fool has a disclosure policy.

The Motley Fool owns shares of Fusion-io. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Ebix. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing naked calls on JDS Uniphase.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

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 May 07, 2012, at 2:19 PM, briansal wrote:

    Rich, you're clueless about Threshhold. That was a non-cash loss due to a one-time recognition of warrants that changed value when the stock shot up this year.. The "performance" you are referring to is there in the form of cash milestones that are being amortized over the next decade. As a result, for this quarter, you need to look at the cash flow, not the earnings alone. In the future, try to do a little DD besides looking at the CAPS rating before writing an article like this and casting it all over the place. You blew it.

  • Report this Comment On May 07, 2012, at 4:26 PM, texasredraider94 wrote:

    Just keep shorting FIO icecube99! We will see who gets the last laugh. Claiming their sales are a joke, when they recently rose by 40% over the recent qtr, while raising growth forecasts for the full year to 75%, exemplifies perfectly how simple-minded & grossly incorrect you are. Trying adding some value with your comments next time.

  • Report this Comment On May 07, 2012, at 5:18 PM, caution1st wrote:

    With regards to Threshold, this article is classic example of incomplete and distorted investment research. While the facts are true, the author neglects to provide readers readers an explanation for Threshold's loss and instead passes off that responsibilty by citing a second financial article.

    With a little bit of effort the author could have explained to readers that Threshold chose to create a non-cash tax loss to offset a large tax liabilty. Threshold would incur this tax liability because it is receiving payments from a deal with Merck KGaA. By knowing this, a reader could put the loss in proper perspective and then understand why the stock could have a big bounce back.

    For the record, of the $115 million loss reported by Threshold, more than $108 million was a NON-CASH loss, created by an accounting strategy employed by the company to avoid a huge tax bill. The loss arose from the sharp rise in the company's stock pricethis year that has resulted in stock options and warrants previously issued being exercised. Many of these warrants and options had been issued when the stock was under $2.00 per share. The stock closed on March 31, 2012, at $8.80 per share. The accounting strategy was an elective choice.

    This year, Threshold is receiving large upfront and milestone fees of about $82.5 million from their deal with Merck KGaA. By creating the non-cash loss the company will save as much as

    $39 million in Federal income tax liabilty ($108.4 X 36% tax rate). Taxes are a real cash cost.

    Any loss remainder from this year can be carried forward into next year when Threshold will again be eligble for more milestone payments. Total potential milestones are $525 million.

    Since thereported loss was a non-cash accounting item it had no affect on the cash reported by the company, which was $49.7million. Since, the end of the first quarter, Threshold has stated they have received an additional $36 million. Added to the $49.7 million this gives the company about $85 million with no debt.

    This article, as so many other motley fools articles, only tells part of the story and emphasis the arts which justifies the author's purpose. By creating the non-cash loss the company saved the company as much as $39 million in Federal income tax ($108.4 X .36tax rate). Taxes are a real cash cost.

    Readers of financial articlesread them from the point of view that more information helps them make better decisions. But when important information is misstated or blatantly omitted, the facts and thoughts conveyed in these articles propagate wrong conclusions and bad decisions.

    This author and others should be more responsible with what they write and strive to give readers complete and unbiased details on which they can formulate more accurate decisions.

  • Report this Comment On May 09, 2012, at 8:03 AM, CelticDuck wrote:

    Ebix is a house of cards built on growth through acquisition and driving the acquired businesses into the ground while milking the life-blood of formerly viable ventures. Knowing what I do of this company I would blindly invest almost anywhere else and hope for the best as a preferable strategy.

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