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2-Star Stocks Poised to Plunge: Lexicon Pharmaceuticals?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, biotech company Lexicon Pharmaceuticals (Nasdaq: LXRX  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Lexicon's business and see what CAPS investors are saying about the stock right now.

Lexicon facts

Headquarters (Founded) The Woodlands, Texas (1995)
Market Cap $577 million
Industry Biotechnology
Trailing-12-Month Revenue $2.8 million
Management Co-Founder/CEO Arthur Sands
Co-Founder/Chief Scientific Officer Brian Zambrowicz
Return on Equity (Average, Past 3 Years) (50.4%)
Cash/Debt $143.7 million / $25.2 million
Competitors Athersys

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 14% of the 286 members who have rated Lexicon believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, All-Star zzlangerhans, wrote that the bear case all boiled down to price:

Lexicon is what I like to call a "Buttercap" stock. You see the share price under [$1.50] and wonder why the company is valued so low. Then you look at the pipeline and it has some potential. ...

You're kind of liking what you see so far, and you're thinking about making your move when the stock suddenly turns around from the bar and ... UGH! You see the market cap of [$500 million]. That's due to a bloated 338M share count, the result of massive dilution in 2010.

The recent 143M share rights offering won't make the share count or market cap any prettier. The way I've seen these events play out before is a continuing erosion in share price followed by a reverse split, followed by more dilution. So next time you see a low share price with a decent pipeline, make sure you aren't investing in a company where everything looks good but her cap.   

What do you think about Lexicon, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the new TrackPoisedTo CAPS account.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Exelixis. 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 Fool's disclosure policy always gets a perfect score.

Read/Post Comments (3) | Recommend This Article (2)

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 08, 2012, at 7:17 PM, dwa2012 wrote:

    It seems to be obvious that Motley Fools are short LXRX. They seem to be using scare tactics in their reports lately. What is up with that: Hey ZZlangerhans, better get another scare message ready. Your last one only worked temporarily. Fools have lost all credibility according to what I read on message boards due to this kind of crap.

  • Report this Comment On February 08, 2012, at 7:23 PM, dwa2012 wrote:

    Fools are upset because they missed the opportunity to load the boat at 80 cents!!! LMFAO! Now what do you say about that fools: YOU MISSED THE BOAT now you are trying to sink it with message bombs. LMFAO!! What IF you bought in at 80 cents like so many thousands of us did, then what? You might be typing a different turn then wouldn't you? MF has ZERO credibility now. Personally I don't believe your data about the 2 star ranking you are using to justify your missing the boat. No info on Invus? No mention of who they are or their track record. Shameful.

  • Report this Comment On March 21, 2012, at 7:55 AM, dwa2012 wrote:

    Looks Like I was more right than the 180,000 PLUS Investors!! ROTFLMAO. And it was so obvious. ZZlangerhans....obviously short along with the more than 180,000 Plus fools. NOw for some short covering!! Anyone happen to see the percentage of short shares? I suppose not. Maybe one of those 180000 plus members can take a look at it and the news of today concerning the FDA.

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Lexicon Pharmaceut… CAPS Rating: **