Why Did My Stock Just Die?

And just like that, fears over Italy being the next domino to fall are back in the headlines. Although fiscal sanity as represented by Mario Monti seems to have barely eked out a win in Italian elections, the polarized electorate is no less divided than here in the U.S. 

Yet the thought that Silvio Berlusconi might return to power just a couple of years after having been run out sent the markets into a tizzy. The Dow Jones Industrial Average dropped 219 points yesterday, or more than 1.5%, after it looked as though his anti-austerity policies would win. Still, that coupled with comedian Beppe Grillo winning a sizable percentage of votes means the two have enough seats in Parliament to block any actions by the winner. And people wanted a parliamentarian-style government here in the U.S.!

As bad as it would be for world economies if Italy defaults because of its size, investors were even more worried about the three companies below and sent them careening downhill.

Company

Change

3D Systems (NYSE: DDD  )

(39.3%)

Dynavax Technologies (NASDAQ: DVAX  )

(32.3%)

Universal Display (NASDAQ: OLED  )

(12.9%)

Now don't go running over the cliff with them like a lemming: It could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.

Eye-popping losses!
Hold on everyone, it's not as bad as it looks. If you woke up this morning forgetting that 3D Systems split its stock 3-to-2 and your stock quote provider hadn't updated their numbers right away, you likely panicked that you'd lost more than a third of your investment's value. In reality, the stock didn't drop 39%, but was rather down "just" 9%. You can breathe again. Of course, a 9% loss would be fairly distressing on its own, so let's look at the reason behind the drop.

In addition to rattling investors by splitting its shares, the 3-D printing company missed analyst revenue estimates, reporting a 45% increase in sales to $101.6 million compared to Wall Street's forecast of $103.9 million. That seems a bit like nitpicking by the markets to me, considering it beat analyst consensus guesses on profits by $0.01, generating $0.26 per share versus the quarter the pros thought it would turn in.

If you think the 3-D printing revolution could be a game-changing industry, yet one that's still in its infancy, then the lower valuation -- even if it's only 9% and not the 39% you maybe first thought it was -- could represent a buy-in opportunity for you.

A sickly stock
Unfortunately for investors in Dynavax Technologies, they didn't have the benefit of a stock split to explain away the loss of a third of their company's value. Rather, the biotech received a complete response letter from the FDA for its hepatitis B vaccine Hepsilav.

Investors really have only themselves to blame for building up their hopes that it would ultimately get approved. Late last year, Dynavax was beaten up after the regulatory agency's advisory committee recommended against approving the drug, but analysts fueled the hope the agency would go its own way and approve it, although with limited scope.

That was the hook investors were hanging their hat on, but the FDA saw no reason to do so because of the very real concerns it had over its safety profile. Now there is still the lifeline in that the CRL said it was willing to discuss the limited labeling, but that might be so narrow as to make it all but ineffective. Sure, some market is better than no market, but the timeline's been pushed back yet again and investors decided it was best to leave while they still could.

While I said you can never rule out how the FDA will side on some matters, it seemed doubtful they would go against its advisory committee when safety was their primary concern.

A shot in the dark
Easy come, easy go. A few weeks ago a bunch of value investors sitting around chewing the fat caused shares of OLED screen maker Universal Display to soar 10% as they ruminated on its coin-drop business model with smartphone makers. Yesterday, a single analyst mulling over its chances came to a different conclusion and sent the stock tumbling.

The Piper Jaffray analyst thought Universal Display was losing some business with Samsung to rival OLED maker Nippon Steel Chemical just as the handset maker is getting ready to launch its next-generation Galaxy 4 S smartphone. He maintained his sell rating on the stock. At least that's not as bad as another rumor making the rounds that Samsung had stopped using Universal Display's OLED materials altogether. 

With earnings due out tomorrow, investors will get a better idea as to who is leading the way forward in OLED displays.

Ready for a resurrection
Universal Display has a powerful patent portfolio behind OLEDs, a technology poised to dominate the displays of the future. Its placement at the center of OLEDs makes the company an underappreciated way to play the enormous sales growth in tablets and smartphones. However, like any new technology, there are plenty of risks to Universal Display. Motley Fool analyst Evan Niu, CFA, has authored a new premium report that dives into reasons to buy the company as well as the challenges facing it. For access to this comprehensive report, simply click here now.


Read/Post Comments (4) | Recommend This Article (3)

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 February 26, 2013, at 10:03 PM, razorrod65 wrote:

    I bought into DDD back in May 2012 @ $31.00 per share and enjoyed watching this one grow. My money doubled at one point . It has been one of the best performers in my portfolio !! I like the stock split and I am still up about 65% . Now it is around the price in which I originally bought so I think I will buy more and hold this one for a few years . I believe this could be the next apple in the rough because when i look at 3D printing it is amazing to me . What will we think of next !!!

  • Report this Comment On February 27, 2013, at 4:57 AM, jrainspe wrote:

    There are no "very real" concerns about Heplisav. At present, there are only "statistical probabilities" that an event may occur, and based on trials so far, that is a very low probability. Even the committee said as much.

    The red herring in the committee sitting in the pocket of a big pharma company did a real hatchet job, even so much as to deny the "undeniable" advantage in efficacy that Heplisav has over it's competitors.

  • Report this Comment On February 27, 2013, at 6:49 AM, TangoXray7 wrote:

    "In reality, the stock [DDD] didn't drop 39%, but was rather down "just" 9%"

    Hilarious.

    You've never witnessed profit taking before? When a stock splits and the split is offered as a dividend, there's a tendency to take profit. This is why we invest. The entire idea is to make a profit.

  • Report this Comment On March 09, 2013, at 1:05 PM, Retaility wrote:

    Regarding DVAX. It would be a different story if there weren't any hepatitis B vaccines on the market. Approval for wide population base is already out the window. Limited approval if at all, with DVAX reporting widening losses to boot.

    "CRL said it was willing to discuss the limited labeling, but that might be so narrow as to make it all but ineffective. " And this is best case scenario that is already priced in. 1$ per share if hepsilav is denied. Don't catch this falling knife

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