Individual stocks can surge 10%, 25%, or even higher in a short period of time. And they can fall just as far, just as quickly. For example, shares of American Apparel (NYSE: APP) fell 17% after the retailer announced falling fourth-quarter profits and warned of a possible 10% drop in same-store sales for first quarter.

Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks along with the larger pessimism facing the market. 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 members' votes count more in shaping each company's rating than do the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 160,000 CAPS members to make better decisions.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with three factors: Their prices have fallen at least 15% in the past four weeks, and they have a market cap greater than $100 million and a beta of less than 3.

Company

CAPS Rating
(out of 5)

4-Week
Price Change

A123 Systems (Nasdaq: AONE)

**

(17.4%)

MELA Sciences (Nasdaq: MELA)

****

(18.9%)

Smith & Wesson (Nasdaq: SWHC)

****

(18.6%)

Source: Motley Fool CAPS.
Price return March 5 through April 1.

A123 Systems
A123 Systems' shares have taken investors on a wild ride since its barn-burning IPO last year, but the stock's been a consistent disappointment this year. The company has shared some positive news, like its deal for electric vehicle batteries with Navistar (NYSE: NAV) and a slight bump in revenue in its most recent quarter. Management has also been seeing strong demand for the company's lithium-ion battery technology. Despite this, A123 managed to end up in the red for the quarter.

Not even a series of deals since its IPO and backing from General Electric (NYSE: GE) could encourage CAPS members to push the company's rating above two stars, as only 85% of the 217 members rating A123 Systems expect it to outperform the market.

MELA Sciences
CAPS members see a big potential market for MELA Sciences' MelaFind melanoma detection device, but the company recently hit a big speed bump in its quest to get the device to market. The FDA said it wants more details and will extend its review another six months.

Investors like the device's chances of approval, but the huge hit that shares took after the announcement has reminded investors of the speculative nature of the stock. Despite the setback, 95% of the 217 CAPS members rating MELA Sciences believe it will be a market-beating investment.

Smith & Wesson
Firearms makers like Smith & Wesson and Sturm, Ruger (NYSE: RGR) enjoyed big sales increases at the onset of the recession and after the new presidential administration took office, but the rush to buy guns has shown signs of easing.

Smith & Wesson's shares took a hit when its fiscal-third-quarter sales came in lower than its own revenue guidance, and its outlook calls for lower quarterly revenue than Wall Street analysts are forecasting. Despite the return to more normal levels for Smith & Wesson's business, many CAPS members have kept their bullish outlook for the company; about 94% of the 854 members rating Smith & Wesson give shares a thumbs-up.

Ultimately, whether you believe a fall in any stock is warranted, your own research is more important than collective opinions. CAPS can help you 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 5,400 stocks that 160,000-plus members 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.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 58 points on average, 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. The Fool has bought calls on MELA Sciences. The Fool's disclosure policy is made of sugar and spice and everything nice.