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. Consider the 16% one-day retreat in shares of JDS Uniphase (Nasdaq: JDSU) a week or so ago, after the maker of optical networking equipment issued sales guidance below what the market was hoping for.

Big drops in share price can signal material defects or new risk, 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 do the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 100,000 CAPS investors to make better decisions.

To put this approach into practice, we'll screen for stocks that have been slashed by at least 25% 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

Hologic (Nasdaq: HOLX)

*****

(25.0%)

Zix (Nasdaq: ZIXI)

****

(33.0%)

Isis Pharmaceuticals (Nasdaq: ISIS)

****

(27.1%)

Headwaters (NYSE: HW)

****

(28.3%)

Pacific Ethanol (Nasdaq: PEIX)

*

(30.3%)

Return data is calculated as the difference between the closing price on April 4 and the closing price on May 8, per MSN Money's screen. Star ranking from CAPS. Data as of May 8.

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

The logic behind Hologic
No stranger to having shares whacked by 20% or 30% or more in a short period, Hologic, a maker of medical imaging systems, is currently sitting 39% below the all-time high of $36.44 that it set at the start of 2008. But with a company growing as quickly as Hologic is, you have to expect significant corrections from time to time. During the past five years, Hologic has bounced back from at least one temporary 25% drop to soar more than tenfold over the period. With its impressive track record, I think the recent plunge is exactly the kind of situation that investors want to scrutinize more closely for the potential to get a great company at a great price.

Hologic has been somewhat difficult for analysts to put their finger on lately, because a huge merger with Cytyc has skewed comparable financial results. The merger was completed last October, but it's still early in the integration of the two companies. On a recent conference call, CEO John Cumming cited great progress in aligning the companies, but the market wasn't as pleased with the $56 million in net income reported. With General Electric (NYSE: GE) reporting softness on competing products, analysts fretted over Hologic's sales trends of various diagnostic products.

Health care is a tough business in general, but Hologic has been on fire with its lead in a rapidly growing sector of diagnostics for women's health and reproduction. Despite near-term concerns about growth and risks associated with the merger, the long-term trends in areas such as digital mammography remain solid. As a result, more than a few CAPS players think the recent sell-off has been overdone.

I agree, and I've jumped on board with the other 558 CAPS investors voting for shares of Hologic to beat the market in the future. With a forward earnings multiple registering just above 19, Hologic trades slightly below its expected 21% growth rate. Of course, analysts might be way off in their projections, but the long-term opportunities for the company, combined with management's track record, is enough to at least put this fallen leader on a watch list.

Whether you believe the reasoning behind a fall in any stock, 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 5,600 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.

Headwaters has shown enough potential to be recommended in the Motley Fool Rule Breakers service. To see which stocks have the service beating the market by 10 points on average, take a free 30-day trial today.

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.