Individual stocks can surge 10%, 25%, or even higher in a short period of time. And they can fall just as far, just as fast. Witness the 24% pounding Netflix (Nasdaq: NFLX) took in one day last week when the king of the red envelope issued a less-than-thrilling outlook for the year. Even main competitor Blockbuster's (NYSE: BBI) distraction in finagling a tie-up with retailer Circuit City (NYSE: CC) wasn't enough to support optimism in Netflix investors.

Big drops in share price can signal material defects or new risk in a company, but at other times, they're simply pullbacks after a long run-up. Fortunately, we have Motley Fool CAPS -- a great resource to help us understand the larger picture behind big price drops.

Is the sky falling?
CAPS contains more than just the crowd's opinions. Its best-performing investors' opinions count more in shaping each company's rating than the picks of their poorer-performing peers. This allows investors to intelligently use the collective wisdom of more than 100,000 CAPS investors to make better investing decisions.

To put this into practice, we'll screen for stocks that have been slashed by at least 20% in the past month, and that have a market cap of greater than $100 million and a beta of less than 3. That'll keep us out of the mud-filled world of gyrating penny stocks.

Here's a sample of stocks our screen returned.

Company

CAPS Rating
(out of 5)

1-Month
Price Change

Western Refining (NYSE: WNR)

****

(30%)

International Game Technology (NYSE: IGT)

****

(23.1%)

Nektar Therapeutics

**

(31.3%)

Pacific Ethanol (Nasdaq: PEIX)

*

(28.8%)

Downey Financial (NYSE: DSL)

*

(35.3%)

Return data is calculated as the difference between the closing price on March 20 and the closing price on April 24, as per MSN Money's screen. Star ranking from CAPS. Data as of April 24, 2008.

Let's add a little color to recent circumstances and find out why some of these stocks have been beaten so badly.

Gaming the system
They say fortunes are made and lost in Las Vegas. I guess that the same can be said for any gambling establishment designed to profit from anyone willing to bet against the odds. Providing all those slots and video-based games that players love to lose at has led to a fortune in stock of International Game Technology as well, as shares have risen more than five times in value in the past decade. Investors have been giving some of their winnings back in the past month however, as IGT shares have fallen steadily since hitting the 52-week high in late February.

While many investors were still bullish on IGT a few months back, several CAPS investors -- and even fellow Fool Rich Smith -- believed the company was indeed poised for a fall. Their analysis proved to be right on -- IGT's revenue and earnings momentum was slowing and started to fall in the first half (October through March) of its fiscal year. News of an adverse ruling in a whistleblower case in late March also left investors feeling IGT may end up having to pay lots of taxes it believes it does not owe.

In its most recent earnings release, IGT pulled the financial equivalent of a 2-7 offsuit -- essentially the worst hand you can draw in Texas Hold 'Em poker -- by missing earnings targets by a wide margin. Net income for the quarter was nearly halved from what IGT reported last year, thanks to weakness in demand in the North American market, where IGT still earns the majority of its business. A myriad of rising costs and expense items also piled on to make the quarter a grim one for the Reno, Nevada-based company.

CAPS investors are still largely betting on the pass line with IGT though, with more than 94% of the 573 investors rating the company bullish on its chances of beating the S&P in the future. Still, if I were a gambling man, I'd hedge my bets on IGT. With shares still a little pricey at 26 times current earnings, I'm more apt to take my money off the table and wait for potentially better odds at a lower price.

Ultimately, whether you believe the reasoning behind a fall in any stock, your own research is more important than collective opinions. Still, CAPS can quickly focus your due diligence, and even point out potential pitfalls you may not have seen.

Add your take on these or any of the 5,600 stocks that 100,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.

Netflix is a multiple recommendation for the Motley Fool Stock Advisor service. To find out why, take a free 30-day trial.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. The Fool's disclosure policy is made of sugar and spice and everything nice.