When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back.
How Far From 52-Week High?
CAPS Rating (out of 5)
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. Recent price and 52-week-high data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
There are no two ways about it. If you owned any of these five stocks last week, you're significantly poorer for it today. So what went wrong?
It's not always clear. Beginning at the bottom, Lexicon Pharma dropped early Wednesday before presenting at a Global Healthcare Conference hosted by Jefferies. It popped as the presentation began, then dropped right back down, and kept right on falling the rest of the week. Apparently, whatever Lexicon had to say just didn't thrill the people listening in.
Other times, the reasons are as clear as day. Marquee solar play SunPower
But where's the biggest overreaction this week? Ordinarily, bargain hunters focus their hunting on stocks that have fallen the most and are the cheapest. Yet surprisingly, this week I see more value in the stock that's fallen the least, and costs the most.
The bull case for LogMeIn
Around the time of LogMeIn's IPO, CAPS member lethaljd gave us a firsthand opinion of the company and its prospects:
Being an IT manager and the decision maker at the company for all IT related purchases, I can say that LogMeIn's services have been a lifesaver. Their LogMeIn software is feature rich and is, hands down, the best I've seen on the market. In addition, their VPN client, Hamachi, is unbelievably easy to use. They have a very nice web interface and great products. I see them as being a perfect acquisition target for a larger tech company in the next 3-5 years.
Not long afterwards, All-Star investor itsvirg penned additional praise for the company:
Use this program JUST ONCE and you'll discover why it's an excellent tool for IT. The Logmein free model provides a great test-run for IT professionals that can then see the value of the paid versions. This could be a great tool for business.
LogMeIn or LogMeOut?
Yet two years after LogMeIn went public, we've seen precious little follow-up on these initial comments. So far, fewer than a dozen brave Fools have ventured to give a clear explanation of why this remote-access computer software maker is a "buy" -- although those who have seem pretty optimistic. Are they right?
Thanks to last week's sell-off, I believe they are. It's been quite some time since LogMeIn shares traded at a level I thought attractive, but as I look at the stock today, it appears we're back in "buy" territory. Consider: Over the past year, LogMeIn has generated $32.5 million in free cash flow from its business -- 78% more "cash profit" than its GAAP earnings reflect. Now, take out the company's net cash from its market cap to arrive at the price of the core business, and I see LogMeIn trading at an attractive enterprise value-to-free cash flow ratio of 22.5.
That's not at all expensive given the 24% long-term growth rate analysts are estimating. It may be even cheaper when you notice that these same analysts dropped the ball several times in the past. LogMeIn blew right by analyst estimates in each of the past four quarters. Put it all together, and I see real potential for LogMeIn to bounce once investors notice how cheap it's finally become.
Of course, that's just my opinion. What do you think? Tell us on Motley Fool CAPS.
Fool contributor Rich Smith owns no shares of any company named above, but The Motley Fool owns shares of EMC, and Motley Fool newsletter services have recommended buying shares of Akamai. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 449 out of more than 170,000 members.
We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.