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Why Roku, Ollie's Bargain Outlet Holdings, and Lexicon Pharmaceuticals Slumped Today

By Dan Caplinger – Dec 2, 2019 at 11:31AM

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Find out how an unexpected tragedy hit one of these stocks.

Monday wasn't a good day on Wall Street, as major benchmarks started the final month of 2019 with across-the-board declines. The White House reignited trade disputes by taking away a previous exemption to steel tariffs for imports from Brazil and Argentina, and market watchers wondered what might happen at this week's NATO summit in London. A host of stocks had to deal with bad news of their own. Roku (ROKU 0.41%), Ollie's Bargain Outlet Holdings (OLLI -0.84%), and Lexicon Pharmaceuticals (LXRX 4.15%) were among the worst performers. Here's why they did so poorly.

Roku: Too far, too fast?

Shares of Roku dropped 15% after a prominent analyst raised doubts about the streaming TV company's growth prospects. Morgan Stanley cut its rating on Roku from equal weight to underweight, citing nervousness about several aspects of its potential future growth. Rising competition could make it more difficult for Roku to sustain healthy growth rates for its ad-based revenue sources, and slowing gains in active accounts could mean the end of the company's fastest-growth phase. Although Morgan Stanley boosted its price target by $10 to $110 per share, that's still well below where Roku's stock trades even after today's decline.

Blue box with Roku unit inside.

Image source: Roku.

Ollie's loses its leader

Ollie's Bargain Outlet Holdings saw its stock fall 10% following the sudden death of Mark Butler, the company's founder and CEO. Butler played an instrumental role in orchestrating the discount retail chain's ascendancy, having been with the company since its start in the early 1980s. The company's board of directors named COO John Swygert to take Butler's position on an interim basis, ensuring as smooth a transition as possible. Yet Ollie's has faced some fundamental challenges in its business in recent months, and Butler's death will just make it more difficult for the retailer to get back to its winning ways.

Lexicon loses its appeal

Finally, shares of Lexicon Pharmaceuticals slumped more than 10%. The drug company said that it had failed to convince the U.S. Food and Drug Administration to change its mind in rejecting Lexicon's new drug application for its type 1 diabetes treatment, Zynquista. One issue that came up during clinical trials was that Zynquista created a risk of diabetic ketoacidosis, and that gave the FDA pause in its consideration of the treatment. Lexicon hopes to take its appeal to the Center for Drug Evaluation and Research, but investors don't seem confident that the company will get a favorable resolution there, either. Moreover, even if Zynquista does move forward, it still has to deal with a number of competing treatments in the space.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ollie's Bargain Outlet Holdings and Roku. The Motley Fool has a disclosure policy.

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